Free Trade with our Allies: Will Obama Bargain with Republicans?

by Matthew Sanyour

As the scores of Republican lawmakers prepare to take office next January and American voters have signaled in poll after poll that they would like to see cooperation between the newly empowered GOP and an increasingly embattled Obama Administration, the few areas of agreement they already share should be fertile ground for new policies. Both Republicans and Mr. Obama have identified competitive exports as vital to achieving recovery; the President has even pledged to double American exports in the next five years. Unfortunately, Mr. Obama’s laudable efforts to rebalance the American economy and reduce the trade deficit through diplomatic channels have failed. The Chinese will continue to use manipulative monetary policy to boost exports. Enacting a counteractive tariff would be political suicide and invite retaliatory measures across the board. Much to his credit, Mr. Obama has strove to quell the specter of protectionism that accompanied this economic downturn. This fortitude is all the more remarkable given the fact that candidate Obama stoked trade-unionist discontent and popular distortions of NAFTA to defeat Mrs. Clinton for the Democratic nomination when the financial crisis was in its opening stages in 2008. Given that we cannot realistically reduce imports from China in the short-term, expanding American market share abroad elsewhere must be our first step on an alternate route towards a sound trade balance.

As long as the White House continues to project a message hostile to American business, companies will feel the need to stockpile large cash reserves as a hedge against any nasty surprises in taxes and regulation, and will be reluctant to take on the liabilities associated with new employees. Mr. Obama has long made political hay by decrying the ills of the private sector; indeed there were many ills to decry. While this was enough to get him elected, it will not be sufficient to deliver the economic recovery that he surely realizes he needs to have a chance at being reelected. The federal government cannot go it alone with fiscal stimulus or loosening monetary supply; most of our economy is in private hands and we need to rebuild confidence in the markets for a real recovery to take hold. It is in Obama’s interest to work with Republicans on this issue, just as it is in Republicans’ interests to show the independents who backed them this time around that they can govern responsibly and demonstrate that free market principles and global competitiveness are in fact superior to the liberal panacea of government spending.

While Mr. Obama has publically expressed support for the three free trade agreements with Colombia, Panama, and South Korea, he has been hamstrung by an unsympathetic Congress until now. The agreements with Columbia and Panama, already ratified by those two countries, have been languishing in the Senate since the Democratic takeover in 2006 and stymied Mr. Bush’s attempts at ratification. In a rare instance of a strong intraparty divergence of views on fundamental policy goals, Democrats in general and especially the liberal base have shown decidedly less enthusiasm for lowering trade barriers during tough times than Mr. Obama has. The Keynesian orthodoxy that still prevails among liberal Democrats has traditionally viewed foreign trade as best kept to a small role in the economy since it constitutes such a threat to the ability of the public sector to command and control wages and spending; the draconian capital controls of Bretton Woods era were the logical outcome of this emphasis on keeping national markets pliable to government direction and sufficiently insulated from the pressures of international competition or foreign demand. The pending free trade pacts with South Korea, Colombia and Panama might help rebuild the President’s relationship with entrepreneurs and give corporate America enough confidence to resume hiring and invest in new ventures.  Progress on this front is not only vital to shoring up the rather disappointing recovery to the Great Recession in the past two years, but also appears far more likely than tax policy reform or sensible spending cuts where the President is totally at loggerheads with Republicans as a way of mitigating the growing deficit that was at the forefront of voters’ minds this year. Mr. Obama still does not seem convinced that the national debt is a problem worth addressing in the here and now. Barring a total change in course in the vein of Clintonian triangulation, it seems that serious deficit reduction will probably have to wait until 2012 when it will be an issue that this Administration will have to appear to take seriously if only for political reasons. These free trade agreements, by contrast, are very much a part of the current political moment. A rising tide of drug violence in South and Central America in recent years has served to underscore the importance of helping to cultivate a legitimate economy as an alternative to the illicit narcotics trade. The Obama Administration has been largely neglectful of Latin American policy thus far except for a few Quixotic stabs in the general direction of the Cuban trade embargo; reaching out to foundering American allies like Colombia and Panama will be important to maintaining US credibility in our own hemisphere. Across the Pacific, North Korean aggression has thrust our relationship with the South into the limelight; ratification of the free trade treaty would reaffirm the American commitment to that alliance. A case-by-case look at where each deal stands:

Colombia

The trade agreement with Colombia was signed by the Bush Administration under the auspices of the Andean Free Trade and Drug Eradication Act (APTDEA), a trade preference measure intended to provide sources of legitimate income as an alternative to the drug trade.  According to the US Trade Commission, this unilateral reduction in tariffs on certain goods has had a negligible impact on US employment and has affected a mild decrease in the production and trafficking of narcotics. It makes sense to expand the areas the tariff reduction covers to further the work APTDEA began. Moreover, Colombia has been a dogged American ally in South America in opposition to their neighbor Venezuela’s brazenly anti-American leftist dictator, Hugo Chavez. The Colombians have paid dearly for this stance as Chavez armed, equipped and financed left-wing terrorist guerillas, the FARC (Armed Revolutionary Forces of Columbia), who operate in the remote areas of the frontier.  Right-wing paramilitary groups formed in response to the FARC, further eroding the rule of law in the border region and forcing the Colombian government to devote increasing military support to its beleaguered civilian law enforcement. An existing free trade agreement with neighboring Peru has been credited with negatively impacting cocaine production in that country, but talks with Bolivia and Ecuador have been stalled by the election of left-wing Chavista governments in those countries, precluding any trade deals with the US for the foreseeable future. If preferential free trade is to continue the good work it has begun in Peru, Columbia must be the next shining example of the benefits of cooperation; to continue to delay ratification would only undermine our ally and embolden the allegations of disregard for Latin America and other anti-American criticisms of Chavez and his ilk.

While American business advocacy groups have lobbied in favor of the Colombian trade agreement, the most vocal criticism in the US is predictably that of the large union AFL-CIO, the foe of all free trade agreements. The trade-unionist critics have cited the failure of the Colombians to adequately protect union organizers from assassination by right-wing paramilitary outlaws while failing to acknowledge that the militarization of these political disputes is due to foreign agitation from Venezuelan-backed terrorists, not intentional policy by Bogota. Despite the obvious disingenuousness and cynicism of such a claim, the Obama Administration is beholden to large trade unions and has paused on the deal, with the President saying he has “no timetable” for approval.

Panama

The United States has played a major role in Panamanian history ever since the US enabled the strategically-placed country to secure its independence. However, since the Carter Administration surrendered the Panama Canal Zone to domestic control by treaty, the relationship between the two countries has been complex. The Bush Administration negotiated the first iteration of the treaty in 2006 but before ratification could be considered, Pedro Miguel González Pinzón, an alleged terrorist who was indicted in US federal court in 1992 for the killings of American servicemen on June 10 of that year, was elected President of the National Assembly, the rough equivalent to House Speaker. González Pinzón had fled Panama after the incident and disappeared, possibly taking refuge in Cuba or the Dominican Republic until his return to his native land in 1995. He was subsequently tried by a Panamanian court in 1997 and acquitted in a sham trial marked by witness intimidation, harassment of the prosecutor, a corrupt jury selection process and ex parte communications between the judge and the defendant’s father, who were political cronies. The deal was moribund until González Pinzón left office in 2008. However, since then the Democratic Congress has failed to act despite removal of the primary obstacle to ratification. Indeed, the Panamanian legislature has already ratified the treaty and current Panamanian President Ricardo Martinelli has already successfully concluded free trade negotiations with Canada and has repeatedly indicated continued interest in US ratification. The departure of González Pinzón and the new composition of the US Senate make this more likely than at any other time since 2007.

South Korea

The recent crisis on the Korean peninsula may have been enough to push Seoul and Washington toward resolution of some outstanding disputes over specific provisions of existing trade law. Both countries are home to powerful domestic automakers; whereas the American car market opened up to foreign competition decades auto, a move that helped fuel the growth of, among others, the Korean auto industry, South Korea has adopted a strategy of stringent and frequently-changing safety standards to protect its domestic manufacturers from imports. This finally changed as of December 3rd when representatives of South Korean President Lee Myung Bak announced they would permit gradually increasing proportions of cars to be imported conforming to American standards. In exchange, the Obama Administration has agreed to allow Korea to maintain its controversial beef import ban on cattle over 30 months of age, a statute widely supported by Korea’s domestic cattle industry.  Although US officials have agreed to leave Korea’s beef import policy intact in the latest version of the free trade treaty, the President has vowed to continue to press the issue in separate negotiations. The White House estimates that the new deal will be worth over $11 billion in new US exports and generate 70,000 new jobs. The outstanding beef ban is already under challenge from Canada and is pending review from the WTO; the issue would become a moot point if the trade body rules that the provision is unjustified by health or public safety. Allegedly adopted in response to the Mad Cow outbreak in the UK several years ago, the age cutoff, Canadian representatives have argued, is arbitrary and unsupported by science. Additionally, they questioned why the ban has been extended to all countries rather than only those with incidence of the disease in their livestock.  If the Canadian challenge succeeds, the US will ultimately achieve its goal of opening up the South Korean beef market to American exporters while expediting the passage of the free trade agreement beforehand by omitting the controversial point from its direct negotiations with Seoul.

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