Trade and Politics Blog

It Finally Happened! On October 12th, the U.S. Congress passed the implementing bills to allow the three long-stalled FTAs (Panama, Colombia and Korea) to finally come into force after five long years. Once the vote count in the House hit 219 members (after briefly pausing at 217) in favor of the first FTA to be considered, Colombia, applause broke out in the galleries, only to be rapidly admonished by security.

All three bills to implement the FTAs passed Congress comfortably, showing strong bipartisan support. The Colombia FTA passed with a vote of 262-167, Panama FTA with 300-129, and the Korea FTA with 278-151. In the Senate, the Korea FTA passed 83-15, Panama FTA 77-22, and Colombia FTA 66-33. A “poison pill” motion proposed by Rep. Levin to recommit the Colombia-FTA with instructions to the Ways and Means committee to deal with the China currency issue was overwhelmingly voted down in the House, allowing the votes to resume a normal course without jeopardizing their fast-track status. President Obama is expected to sign the FTAs into law as early as next week. Congress meanwhile was pleased that they were able to “do their portion” for the FTAs the day before the President of Korea addressed a joint session of Congress on the 13th. All of the FTAs will prove beneficial, however, the KORUS-FTA in particular is heralded as the most economically significant trade agreement since NAFTA, which was signed over 15 years ago.

Alongside the passage of these FTAs yesterday, Congress also approved the long-overdue renewal of the Generalized System of Preferences (GSP) and the Andean Trade Preference Act (ATPA) through July 31st, 2013. Both programs will be retroactive, allowing importers refunds from the date of the programs’ original expiration. Our previous coverage on this issue highlights the political rollercoaster well.

Moving forward, the issue of artificially depreciated Chinese currency will be the next political battlefield as the Administration tries to wade in very sensitive waters. With the House Speaker appearing firmly against any such measure, the Democrats, led by Sander Levin ((MI) will try to force the bill to the full House by using a “discharge petition” measure. The FTAs votes were an important moment that showcased the speed the political process can move if pushed to take action. A legion of international companies, Hill staffers and trade policy wonks are now ready to start dealing with all trade issues that have been waiting on the backburner for years.

Now that the dust is settling on the amazing and historic end of this year’s baseball regular season, we can start looking ahead to what promises to be an exciting October, not only for baseball but also for trade policy. While many anticipate the FTA legislation to reach Congress sometime next week, those who have been following the situation for the past four years feel a little like Red Sox fans before 2004 or, worse yet Chicago Cubs Fans. Every time it appears that the FTAs are finally going to make it, something goes terribly wrong.

This week nearly all republican members of the house finance committee sent a letter to President urging him to submit the pending FTA’s. However, the White House is waiting for passage of TAA and has not been willing to submit the FTA’s until TAA is renewed. Despite Speaker Boehner’s assurance to President Obama that he will pass the FTA’s in tandem with GSP and TAA, the two are still at odds over the exact definition of “in tandem.”

There’s some pressure to pass the Korea FTA prior to the visit by President Lee Myung-bak on October 13, but the official dignitary visit may not be enough as there is talk about a China currency bill coming to the floor soon. That legislation seems to have plenty of support in the Senate but House leadership has kept their view silent for now. The worst fear for FTA advocates is that the China currency debate will create incendiary debates between the two parties, yet another rift between Obama and Boehner, and take away precious little time for the FTA to get approved before the end of this year. Keep in mind that come November, the super committee in charge of budget discussions will start presenting its deficit reduction proposals and this is certainly going to start taking precedence over the FTAs, especially since both issues will be handled by the same Congressional committees.

For those who are more optimistic, the White House could send the FTAs to Congress as soon as next week. After that, the FTAs would need to be marked up in the House Finance Committee and the House Ways and Means Committee; the latter will only do so with a 48-hour advanced notice. Once the bills are marked up, an additional 72- hour period must pass before they can be transmitted to the floor for a final vote. This could technically all happen in October, but it will require tremendous focus and effort on the part of lawmakers.

Needless to say the window to quickly pass the FTA’s quickly is closing fast. Even if disagreements over Chinese currency and congressional time constraints fail to derail the FTA’s, we are still left to wonder what else could possibly go wrong. Let’s just hope that by the end of October we can compare the FTAs to the resurging Rays or Cardinals, and not to the collapsing Red Sox or Braves…Play Ball!

Senate Majority Leader Harry Reid has scheduled floor action on the latest bill aimed at addressing China’s currency misalignment, The Currency Exchange Rate Oversight Act of 2011, for October 3rd. The plan is to hold a cloture vote to shut down the filibuster on the bill and move it forward for a vote. It is possible that the bill could be voted as soon as the end of next week.

The bill is a hybrid of legislation passed in the House last year, and a bill proposed earlier this year by Senators Sherrod Brown and Olympia Snowe. Although it does not refer specifically to China its supporters have been focusing only on China and its currency value. Senator Schumer remarked it (passage of the act) will “send a shot across China’s bow,” and Senator Reid wants to “send a message to the Chinese.” Other countries have at times been accused of currency manipulation but none have had the economic impact of China.

As proposed, the bill would replace the guidelines used to identify countries who manipulate their currency. Among other things, Treasury is to create a biannual report identifying countries misaligned currencies and priority countries. For priority countries, if the country does not take steps to rectify the misalignment then US sanctioned consequences would be triggered. These actions could include opposition to many forms of international financing for projects in the designated countries, implementation of trade remedies such as antidumping duties and bans on federal government procurement agreements with the designated countries, a request for a WTO dispute settlement panel to hear the dispute and other forms of remedial currency intervention.

Another important provision is that it limits the President’s waiver authority. It is quite possible that the President will not agree with Congress limiting its ability to issue waivers in instances of national economic need or security. If the bill is passed by both Chambers and sent to the President, he will be hard pressed not to sign it. At the same time, he can also use his authority to notify Congress that he will not implement those provisions which limit his authority.

The Obama administration doesn’t seem to be on board with this type of action aimed at China. They have not directly spoken out on the proposed bill but Treasury Secretary Geithner has recently stressed the importance of dealing with China’s currency undervaluation with positive leverage and in accordance with our international obligations. Some fear that passage of this bill could reverse recent progress made by the administration in pressuring China to open up their markets further to American goods. Despite opposition Obama likely does not have a choice as he is working with diminishing clout, against vast bipartisan support of the bill (20 Senate co-sponsors and rising, including 5 Republicans) and the continual strong public perception that China is to blame for US job loss.

In true Washington form, the expiration of Congressional authority for the GSP (Generalized System of Preferences) on December 31st, 2010 spawned a political circus that is not about to end. On September 22nd, the Senate passed a retroactive extension of GSP until July 31, 2013 by a vote of 70-28 and attached the Trade Adjustment Assistance (with 69 votes) to it. This vote was itself a product of a long and tortuous journey.

As we partly highlight in our blog post ‘Showdown’ on May 18th, getting this bill through has taken wrangling over the TAA extension, cutting through a Senator’s hold (over sleeping bags), and poisonous verbal barbs by both sides.

Thankfully, both parties in the Senate managed to table their differences, albeit momentarily, and approve the GSP with TAA attached. Now, the bill gets sent back to the Republican controlled House, where it faces another challenge. Because the GSP-TAA is in their hands, it is highly unlikely that the bill gets sent to the President without submission of the FTAs to Congress. Once the President sends the FTA’s to Congress they will have to decide over the matter of linking the bills– likely through establishing a rule that will link the fate of these bills together.

On September 19, the Council on Foreign Relations (CFR) released an independent task force report on U.S. trade and Investment policy providing and insightful comprehensive look at current U.S. trade policy. The Report provides a strategy for the U.S. to leverage its significant assets and resources to make trade investment work for the American economy. Yet, the report acknowledges the concerns of many Americans facing employment and income pressures who have become skeptical of how new trade agreements will help them.

The report’s authors offer a number of policy options, including a restoring trade negotiating authority to the President, better enforcement of trade laws, the establishment of a comprehensive worker retraining policy to assist displaced workers reintegrate into the job market, and a call for the creation of a national investment initiative to attract the kinds of investment that lead to high wage, high productivity jobs.

However, throughout the Report, public sceptism over the benefits of trade shadows the Report’s analysis and conclusions. Anti-trade sentiment from back home resonates in the Congress and with the Administration and effects decision making on trade policy. While Congressional action to move the pending three FTAs will provide significant momentum for trade liberalization and provide an opportunity to begin the next trade debate, reconciling a divided and skeptical public to the benefits of trade will be one of the real challenges for the future of trade policy. The full report can be found here

Apparently Congress has two speeds – geologic and lightening. In very rapid succession the House and then the Senate passed a new bill – HR 2715 – which would amend the CPSIA. (I say “would” because we’re waiting now for the President to sign the law, almost a foregone conclusion). The bi-partisan measure – sponsored by Chairman Bono-Mack and Ranking Member Butterfield – was introduced and passed by the House yesterday (August 1, 2011) by a vote of 421-2, then promptly picked up by the Senate later that same day and passed by Unanimous Consent. And who said you can’t get anything done in Congress?!

The bill packs a pretty big punch for a relatively small piece of legislation – only 29 pages. First, it makes the new 100PPM lead limit in content prospective as of August 14, 2011. In other words, whereas before the limit would have applied to inventory, now it only covers products manufactured after August 14. The sighs of relief from industry are audible. Next, the bill creates a “functional purpose exception” to the lead limit. That means that the CPSC, on its own or following a petition, can exempt certain products or product types from the lead ban under certain conditions. It’s not open season, but now there’s light at the end of the tunnel, for some. The bill also tries to allow more flexibility on third-party testing, with an explicit eye towards helping to reduce cost which has been so crippling, particularly for small and medium-sized businesses. A special rule is created especially for small batch producers. Again, trying to lessen the burden of testing. We’ll see how much that helps.

There are provisions in HR 2715 to exclude used children’s products and printed books from the lead limit – addressing an issue that had been a thorn in the side of charities, second-hand shops and school libraries across the country. Phthalates are given an inaccessibility exclusion, similar to the one for lead, and tracking labels get the same treatment as the lead limit – the CPSC may exclude a product from the requirement upon petition. Finally, the dreaded database gets a make-over, preventing comments from being immediately published if the CPSC receives information from industry that the comment is materially inaccurate. As I said, an ambitious agenda for a pint-sized bill.

Of course, implementation, as always, will be the key. While the lead limit change takes effect right away, the other provisions – the functional purpose and the tracking label exceptions, for example – will see their effectiveness revealed over time. In some ways, once the President inks the deal, the ball will be in industry’s court.

For more information please follow this space or contact Ned Steiner at esteiner@strtrade.com