CONSISTENTLY DELIVERS

Jun 23, 2010

What's the 2010 Congressional Trade Agenda?

What's the 2010 Congressional Trade Agenda?

by L. Preston Bryant, Jr., McGuireWoods Consulting LLC


CONTENTS


Given all the major headline-grabbing initiatives going on in Washington – healthcare and financial regulation reform, the Gulf oil spill, and possible immigration and energy/climate change legislation – what is happening in Congress on international trade?

Well, there is a great deal going on. There is activity springing from both President Obama's aggressive export initiative and Congressional action, especially Asia, Customs Reauthorization, and pending free trade agreements, to name a few.

Obama: Double Exports in 5 Years

President Obama has set a goal of doubling U.S. exports in five years. This is a very aggressive goal – the last time the U.S. doubled its exports, it took a decade – but it's a welcomed one.

Obama has won praise – especially from many on Capitol Hill – for talking about trade in terms of jobs. Simply put, every 1% increase in exports equals 250,000 new jobs. By continuing to equate trade to jobs, policymakers and trade professionals can be sure that international trade will remain integral to the administration's ongoing domestic economic recovery strategy.

2010 Congressional Trade Agenda – A Few Items to Highlight

  • Asia
  • China
  • Trans-Pacific Partnership
  • APEC
  • Customs Reauthorization
  • Pending FTAs

Obviously, 2009 was a tough economic year. But congressional trade analysts are looking back on it not as a lost year, but a "rebuilding year" that portends good things for 2010 as President Obama and Congress – amid the all-consuming Gulf oil spill – continue to focus on economic recovery and emphasize trade initiatives as integral to job creation.

Here's a rundown of what is dominating the summer 2010 congressional trade activity.

Asia

Asia is the "future of our trade agenda," say key congressional analysts. At issue is the need to gain for U.S. exporters greater and more meaningful access to the all-important Asian markets.

The biggest issue is arguably the undervalued Chinese yuan. It is a major sticking point between the Obama administration and China as well as among congressional leaders, especially those on the Senate Finance Committee and the House Ways and Means Committee. And the U.S. is not alone. India and the European Union also are increasingly alarmed by China exchange-rate policy, especially as China's failure to address it is causing some other nations to act artificially on exchange rates.

Another particularly troubling area, according to congressional trade analysts, is the Korean automobile market. The U.S. (and other countries) has been effectively shut out of the Korean auto market. Indeed, some 78% of the U.S. trade deficit with Korea is attributable to the auto sector alone. At present, this is a major concern for congressional leaders and is among the principal items holding up a U.S.-Korea Free Trade Agreement.

China

Looming in the background on most all trade matters is China – especially China's currency policy. Many congressional leaders hold China's undervalued yuan to be integral to most every other trade discussion. An undervalued yuan makes China's exports cheaper and imports to China markets more expensive.

Congressional leaders are increasingly adamant that China be the focus on trade imbalance discussions while admitting there are no easy answers. Congressional leaders are swearing off complacency and are demonstrating impatience over China's refusal to address its exchange-rate policies.

The Obama administration also is increasingly stepping up its rhetoric on the undervalued yuan, with Treasury Secretary Geithner promising last month to use all tools available under U.S. law to level the trade playing field for American companies.

For all of the stepped-up rhetoric, however, both congressional and administration trade officials also stress bilateral dialogue as well as the need to build international consensus to pressure China. Look for more on this issue in the lead-up to the G20 finance ministers' meeting in Toronto on June 26-27, 2010.

Trans-Pacific Partnership (TPP)

The importance of the Trans-Pacific Partnership cannot be understated. Indeed, the seven TPP nations – Australia, Brunei, Chile, New Zealand, Peru, Singapore, and Viet Nam – are tantamount to the U.S.'s 9th largest trading partner.

President Obama has signaled keen interest in TPP engagement, as he sees it as key to increasing exports to receptive economies and thus boosting at-home jobs (Asia-Pacific economies are slated to grow faster than global averages over the next handful of years).

Congressional leaders also recognize TPP's potential. However, as agreement negotiations continue, led by U.S. Trade Representative Ron Kirk, congressional trade leaders are watching to make sure TPP rules do not put the U.S. at a disadvantage in this rebounding economy.

The Obama administration and congressional leaders would like to conclude TPP negotiations by the time the U.S. hosts the APEC forum in November 2011.

APEC

The U.S. will host the 2011 Asia-Pacific Economic Cooperation conference in Honolulu, Hawaii. The forum will be November 12-20, 2011. President Obama and the First Lady will serve as hosts to other world leaders. Some 20,000 people are slated to attend (participants, staff, media, etc.). It is expected to be the largest such intergovernmental forum in Hawaii's history. The last time the U.S. hosted the APEC forum was 1993 in Blake Island, Washington.

APEC's 21 Member Economies will be present to engage in dialogue designed to achieve non-binding but broad consensus on investment and free-trade promotion. These Member Economies account for more than 40% of the world's population and more than 43% of world trade. And for the U.S. in particular, the 21 Member Economies receive more than 60% of American manufactured goods, which directly affect nearly 4 million U.S. jobs.

There also will be the usual corresponding APEC CEO Summit, which will attract upwards of 10,000 participants, including major business leaders from the Asia-Pacific region. The National Center for APEC will play the leading role in coordinating the APEC CEO Summit and business leaders' interaction with regional government leaders.

The Obama administration and congressional leaders are preparing to draw strong connections between two-way APEC trade and its importance to American jobs. No doubt, much of what is happening in Congress in 2010 – i.e., ongoing economic recovery and job-creation efforts – will be important to the 2011 forum.

Customs Reauthorization

Congressional leaders would like to see passage of a customs reauthorization bill by the end of the year. That's good, because passage is important to U.S. exporters. And it's also a positive sign that a bipartisan approach is underway to the Customs Facilitation and Trade Enforcement Reauthorization Act of 2009.

The customs reauthorization bill seeks to better balance U.S. Customs and Border Protection's principal mission: to protect U.S. national security and to ensure that legitimate trade across U.S. borders is smooth and efficient. Emphasis is being placed on beefed-up trade facilitation, with new offices being created within CBP to coordinate with other government trade agencies as well as to work more closely with private-sector trade entities.

Senate Finance Committee Chairman Max Baucus (D) and Ranking Member Charles Grassley (R) are working hand-in-glove on this legislation. As introduced, U.S. trade organizations and many industry sectors – retailers, pharmaceuticals, and shippers, to name a few – have been generally supportive of the Senate bill, though they have not been without a few concerns. The House Ways and Means Committee also has held productive meetings on customs reauthorization, with its own bill in the offing. Congressional staff will continue working on the legislation this summer, though there has been no indication when votes might be scheduled.

Pending FTAs

The U.S. currently has Free Trade Agreements with 14 nations, and these nations account for just over 40% of U.S. exports. There are three new FTAs pending: Colombia, Korea, and Panama.

Congressional trade leaders are looking closely at these three pending FTAs, as each has unique issues that must be addressed, while Federal Reserve chairman Ben Bernanke is strongly encouraging Congress to approve these FTAs, which he finds critical to ongoing economic recovery plans.

The pending Colombia FTA, which Colombia's legislature approved in 2007, will eliminate most tariffs on U.S. exports and phasing out within a decade what few tariffs remain. For some members of Congress, there remain to be resolved certain human rights, environmental, and labor issues before Congress will take up the Colombia FTA. President Obama has said that he would like to see the Colombia FTA approved by Congress this year, especially since Colombia has completed FTAs with Canada and the European Union. However, it looks increasingly doubtful that Congress will be able to take up the Colombia FTA given its increasingly packed legislative agenda.

The U.S. and the Republic of Korea signed an FTA in 2007; however, neither the Congress nor the Korean National Assembly has approved the treaty. Once it is approved and effective, virtually all consumer and industrial products trade would be tariff-free, adding billions of dollars to U.S. GDP. U.S. agricultural products would be a big winner under the FTA, as would U.S. financial service sector companies, who would gain greater access to the Korean market. However, there remains one significant unresolved issue: U.S. access to the Korean automobile market. (Access to the Korean auto market also is a major issue for E.U. nations, who are similarly shut out.) Congressional leaders want the auto market barriers addressed before the U.S.-Korea FTA is taken up.

All understand the importance of the U.S.-Korea FTA. Korea is the U.S.'s seventh-largest trading partner; two-way trade between the countries is approaching $100 billion annually. For the U.S., the FTA represents the most significant such agreement to be hammered out in Asia, and it can serve as a model for other Asia FTAs. For Korea, the FTA likewise represents the most significant one they have negotiated with any nation. Whether the FTA is taken up by Congress before the end of the year is uncertain – likely not.

Panama is increasingly important to global trade, especially as the canal is being expanded. The country also is more and more the Central American regional banking center. The U.S. exports some $4 billion worth of goods annually and enjoys a trade surplus. The U.S.-Panama FTA was signed by both nations in 2007. Should Congress approve it, immediately nearly 90% of U.S. industrial exports and 60% of farm exports will be duty-free. The FTA also solidifies understandings on various telecommunications, intellectual property rights, and procurement matters. All of that notwithstanding, however, in the U.S. the agreement remains controversial and is stalled. Outstanding issues to be hammered out include certain labor, environmental, and tax-transparency policies. It remains doubtful that these outstanding issues will be resolved so that Congress can take up the U.S.-Panama FTA before the end of the year.


L. Preston Bryant, Jr., is senior vice president at McGuireWoods Consulting LLC. He served as Virginia Secretary of Natural Resources in the cabinet of Gov. Timothy M. Kaine. He can be contacted at pbryant@mwcllc.com or at 804.775.1923.