Friday, March 17, 2006

"What's the Rush?" US-ROK FTA Part 2

I mentioned one of the fundamental reasons why trade negotiations are contentious in my last post, basically somebody somewhere has to get a new job. In addition to this, the conflict over trade deals is exacerbated by the setup of the American system of government. In one way or another, the problems can be traced back to the US Constitution. It has been argued that the US Constitution is set up so as the government can do nothing, in my mind nothing supports this argument better than free trade agreements.
As general law, a free trade agreement is a treaty. Treaties, you may recall, are signed by the president, and then ratified by the Senate. In the ratification process the treaty is treated like any other bill under consideration. The Senate is made up of two representatives from every state in the Union. Sounds rather simple but lets break it down.
The last part is perhaps the most fundamental part, “the Senate is made up of two representatives from every state”. The Senate is NOT a proportional representational body. Accordingly somebody from a small state can wield great power. And in a small state, as this former resident of South Dakota can tell you, it does not take that many people to successfully sway a vote.
To illustrate this, lets us say that we have a farm state of 300,000 people. That state has two Senators representing 2% of the vote in the Senate, yet those senators only represent .1% of the population of the United States as a whole (about 300 million).
Now this farm state happens to be the biggest supplier of canadian bacon in the US. It has meatpacking plant that employs 15,000 people. The plant is in a town of 60,000 and in that town the plant is the major employer.
The US was to sign a Free Trade Agreement with Canada (yes, I know we already have in the real world), how do you think that town would feel? They would of course not be happy and would petition its Senators. The Senators would be a bit worried. The plant alone is 5% of his possible votes, but the impact may expand to 20% of the votes in his state. So we now have 2% of the votes in the senate being decided by the .005% of the population of the US directly affected by the trade agreement. This is a huge magnification of power exerted by rather small group of people.
So how is this power wielded? Well as I said, the treaty is ratified as if it were just any other bill submitted to the Senate. This means its is subject to all the usual skullduggery the US Congress, in general, is known for. The most substantial is committees. Just like any other bill, a treaty must pass through all the relevant Senate Committees, and with free trade agreements being so vast in scope, that’s a lot of committee votes. Not to mention that every committee has numerous sub-committees.
In these committees they can add, subtract, and mutilate the free trade agreement as much as they want. Further to actually pass out of committee, you need a majority of the vote. Remember our Senator from the example? What if he was on 20-member committee reviewing the bill? Now he is 5% of the vote on the treaty, yet is being held sway by the direct fate of only .005% of the US population.  Further if he is chairman of the committee, he decides the agenda of the committee, guess how high on the agenda he is going to place voting on the treaty?
Assuming that Senator was unsuccessful, there are still more fun Senate rules to kill the treaty. Most notably, and again in the constitution, is the filibuster (unprecedented, but possible). If this Senator can get just 31 people to agree, he can block the vote by the Senate. Considering both Senators, this is about 6% of the power for .005% of the population.
In addition to all this numbers fun, is the reminder of logrolling, or more commonly referred to as vote trading. At any one of these voting stages, the effected Senator can either remind others of, or promise future, votes that affect others. One Senator likes the promise of cheap bacon? Ask him what he likes more, bacon or the Navy base in his state remaining open. Another indifferent to breakfast meat? Remind him of your vote on his pet project for a multi-million dollar federal grant to study shaved cats at his state’s university.
Despite these hurdles, for the longest time trade agreements passed through the Senate with few problems for about 30 years after World War II.  This was likely because US tariffs were general low all ready, so GATT brought others down closer to US levels. The numbers of Senators affected by the agreements were either few, or even few constituents ever cared to even say something. However, the danger of trade agreements being gutted was a real fear among free traders. In responce, in 1974 with the lead up to the Tokyo-round of GATT talks the US Congress passed a new tool "Fast Track" Authority.

Fast Track was a novel ideal. It gave the president to sign any trade agreement, and then the agreement would be put to a Senate vote without amendments (I would quibble in the definitions given the current debate over the use of the filibuster, it is unclear if the Senate waved that constitutional right as well). While this authority languished for a while, enough people cared enough to get it renewed multple times. The Reagan and Bush Sr. administrations later seized the opportunity and negotiated some sweeping agreements. The (Canadian) Free Trade Agreement passed without too much controversy (in the US at least). Smaller, and perhaps more political, was the Israeli Free Trade Agreement. 

What changed everything were the North American Free Trade Agreement (NAFTA) and the Uruguay-round of GATT that set up the WTO. The NAFTA debate could perhaps best be summed up by Presidential Candidate Ross Perot’s “Giant Sucking Sound” of US jobs going to Mexico. The fear expressed by many was that US companies would simply move everything to Mexico where labor was cheaper and poorly organized, environmental rules were more lax, and businesses in general was argued as less regulated. Meanwhile the debate of the Uruguay-round was two fold, one a general backbeat off the NAFTA jobs debate, and the other that the dispute resolution mechanism of the WTO would supersede US law.
Regardless of the merits of these cases, and the merits of those supporting free trade, there is no doubt that the fight to pass both of these was messy. In fact I feel that a paradox was the only reason NAFTA and WTO were ratified. Both agreements were negotiated by a Republican (George Bush Sr.)  but were shepherded through the Senate by a Democrat (Bill Clinton). If were not for enough ideologues voting for, and the arm twisting done by the opposite party I doubt at least NAFTA would have been ratified. (Perhaps one of the finest moments of the US democratic system actually coming to consensus most of the country wanted.
When the hubris after NAFTA died down, the Clinton administration tried a different tact, make trade agreements which would encompass by the free trade aspects, but also bring up the labor and environmental laws of other countries to US standards (a key argument made by the detractors of NAFTA). Needless to say idea of the US not only dictating trade terms (remember in most cases it’s the US that was asking for the removal of barriers) but also a countries labor and environmental laws went over like a lead balloon. The only agreement I can remember being negotiated in this manner was the FTA with Jordan, the "success" of which may had something to do with the fact that it was and is an autocratic nation. Some may remember this time as the buzz word "fair trade" was used.
Clinton eventual let "fast track" authority die a quiet death, or perhaps he just did not have the political capital to pass it with him entering the lame duck phase of his presidentcy and was already working form a policial capital deficit because of a "staff" problem. A related issue was perhaps the riots in Seattle during the WTO summit which put in stark relief for US politicos popularity and increasing moxie of the anti-globalization advocates. 

When George W. Bush took the office over he had a new vigor for the subject and in the first half of his term successfully argued for the re-enactment of "fast track" for an ambitious trade agreement offesnive. Few people connect the dots in my view, but my guess is the passage of the agreement had to do the fact that Bush adminstration around the same time signed a large farm subsidy act and also imposed quotas on imported steel. Many called this hypocrisy, and in my mind there is a bit of truth to that. 

However Bush has pretty much shot his load in more ways than one. Not only is the "fast-track" authority set to expire soon so are the plums he passed out, such as the steel quotas. Additionaly the President has drained most of his energy on a war on terror. This is not to say that the authority was wasted, the US has successfully concluded agreements, or has agrements pending, with countries from Australia to Morocco. Nevertheless, "fast track" is due to expire next year, and this creates the deadline and the rush to do it now or else face the horrors of the Senatorial political sausage factory.

"Not so fast!" you may say, "Why start now in 2006 when 'fast track' was renewed in 2002?" Good question. No doubt it had some things to do with US government policies. Personally I guess that the negotiations on the Bilateral Investment Treaty with Korea was in some why a US set precondition. Also given the sheer volume of agreements being negotiated something must be said for the staff of the US Trade Representatives Office being stretched too thin. However South Korea had some of its own hang-ups that lead for the delays as well.


Post a Comment

<< Home