The Washington Diplomat / December 2002
GOP CONTROL OF CONGRESS LIKELY TO PUSH FTA DEALS ALONG By Larry Luxner
From Singapore to South Africa, business executives and diplomats across five continents are hopeful that the Republican victory in last month's mid-term elections will lead to U.S. free-trade agreements with their governments.
Yet the United States has signed FTAs with only four countries: Canada, Mexico, Israel and Jordan. Under an FTA, protectionist tariffs on imported goods are gradually lowered and eventually eliminated, thereby resulting in increased exports and, hopefully, more jobs.
With passage earlier this year of Presidential Trade Promotion Authority (TPA) — something the Bush administration fought long and hard for — the president may now negotiate trade deals that Congress can accept or reject, but not amend.
With the Nov. 5 re-election of virtually every member of Congress who supported TPA, also known as "fast track," the signing of future FTAs appears much more likely.
"The administration already has TPA, so basically there's nothing legislative-wise that would change," said David Lewis, vice-president of Manchester Trade Ltd. "What the election results do, at least from the domestic political point of view, is give the White House and the Bush administration a vote of confidence in its policies."
Lewis said that with TPA came the establishment of a Congressional Oversight Group headed by the chairman of the Senate Finance Committee. Incoming Sen. Chuck Grassley (R-Iowa), who will head that oversight group, says he expects to continue his close cooperation with the current chairman, Max Baucus (D-Montana), on most issues.
And that could make it easier for Bush to win passage of FTAs between the United States and a number of countries including Chile, Singapore, Morocco and Australia. The Bush administration is also pursuing FTAs with two regional blocs: the Central American Common Market and the Southern Africa Customs Union.
"If you look at some of the Republican members who were targeted by the protectionists, they did fine. And some of the Democrats who took courageous positions to try to support us in the House, they did fine," said U.S. Trade Representative Robert Zoellick. He added that the Bush administration "relied heavily on Republican votes to get TPA done in both the House and the Senate, as did President Clinton," and that "we're better off with a Republican Congress."
René León, El Salvador's envoy in Washington, says a proposed Central American Free Trade Agreement, or CAFTA, would link the U.S. economy to the economies of five nations: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Talks regarding CAFTA will begin Jan. 8 in Washington, and the first substantive round of negotiations is to be held Jan. 27 in San José, Costa Rica.
"The fact that the 108th Congress will be controlled by Republicans in both houses is a very positive element which could expedite the process," León told The Washington Diplomat. "But you always need bipartisan support."
León said he expects to see resistance from special interests such as farmers and textile producers who would object to Central America's relatively cheap labor costs. But he stressed that CAFTA is quite different from NAFTA, which has united the economies of the United States, Canada and Mexico since 1994.
"We are a group of very small countries negotiating with the U.S., not like Mexico or Canada," he said. "Secondly, we don't share a 3,000-mile border with the U.S., and third, our economic and social realities are different."
Mohammad Ariad, economic counselor at the Embassy of Morocco, said Zoellick formally notified Congress on Oct. 1 that it would pursue an FTA with Morocco.
"An FTA would open tremendous opportunities for both countries because tariff barriers will be lowered," said Ariad, estimating current bilateral trade at around $1 billion a year. "Morocco has always been a true friend and ally of the United States, and we were the first country in the world to recognize U.S. independence, in 1777. We have the longest unbroken international foreign relations treaty between the U.S. and any foreign country."
Ariad says 57 members of Congress have already sent a letter to Zoellick supporting the idea of an FTA with Morocco. He said formal negotiations should begin in January.
"Jordan is the only Arab country to sign an FTA with the United States, and Morocco will be the first country to negotiate an FTA under the new Trade Promotion Authority, and under the Bush administration. Probably others will follow."
Lewis, whose Washington-based consulting firm has clients in Latin America, Africa and the Middle East, says "national elections are never won or lost on international trade issues, so I really don't think trade policy provided votes" either for the Republicans or against the Democrats.
"That being said, obviously a majority in the Senate does facilitate things for the administration on its trade policy," he said. "Before the elections, they had to convince more Democrats in order to get a majority. Now they have that majority, so it gives them a cushion. But the agenda remains the same."
Mary A. Irace of the National Foreign Relations Council agrees.
"Clearly, having the same party in charge as the president's party is always helpful in getting his agenda through," said Irace, the NFRC's vice-president for trade and export finance. "However, the Senate margins are very narrow, and Congress itself always has a lot to say about any trade agreements. So there will be some give and take."
Irace explained that "prior to the election, there was a lot of emphasis by Baucus to be part of negotiating sessions. I'm not sure that the incoming chairman, Grassley, will have a strong as view on that."
"The TPA has been passed, so the major hurdle is behind us," she said. "Frankly, we are in a better environment overall. Nevertheless, there will remain strong views on all of these issues. I don't expect the Democrats in the House to be completely quiet about their views on any trade agreements. It'll be an interesting year."
Even more interesting, in fact, if FTAs can be concluded with Chile and Singapore — widely viewed as the next likely two candidates to enjoy unfettered access to the U.S. market in exchange for opening up their markets to U.S. goods.
Singapore's ambassador in Washington, Chan Heng Chee, says "the representatives I speak to are in support of an FTA with Singapore because they see Singapore as a free trader, and because we play a major supportive role in security and the war on terrorism."
Chee said her country — despite its small size — ranks as America's 11th-largest trading partner. Most of the $40 billion in bilateral trade this year has been concentrated in high-tech exports like printed-circuit boards, semiconductors and telecom equipment.
"Now that the Republicans control the Senate and the House, legislation will hopefully be introduced faster than before. But we still need a substantial number of Democratic votes in order to have the legislation pass in the House."
The FTA will eliminate tariffs on most of Singapore's exports — particularly electronics and chemicals. The main benefit for U.S. firms is greater access to Singapore's services sectors, especially the financial sector.
In addition, Singapore has agreed to pass a competition law to proscribe unfair competition and encourage entrepreneurship. It also will strengthen intellectual property protection.
Chee said there remain "just some small, little issues which have to be ironed out," said Chee, noting that Singapore already has FTAs in place with Australia, New Zealand, Japan and the European Free Trade Association, and is in the process of negotiating one with Canada in addition to the United States.
One of those issues is U.S. access to Singapore's financial services sector, where disagreement remains over the ceiling for foreign ownership and the ability of U.S. banks to market their services to all Singaporeans. The other matter involves restrictions on U.S. law firms in the country.
"Our terms should not be worse than Chile, because both these two agreements are going up together," she said. "How would we explain to our people and certainly to our region?"
Once Singapore and Chile are out of the way, Congress will also take up a proposed FTA with Australia, now that Zoellick has officially notified lawmakers of the USTRO's intent to enter into negotiations.
"We believe the United States has much to gain in pursuing a negotiation with Australia," Zoellick wrote in the letter to Congressional leaders. "The increased access to Australia's market that an FTA would provide would further boost trade in both goods and services, enhancing employment opportunities in both countries. We plan to use our negotiation with Australia to strengthen these commercial ties and address barriers that U.S. exports face today."
He added that "we will work hard to facilitate the export of U.S. food and agricultural products to the Australian market and to address the full range of issues facing U.S. agricultural exports."
Australia's ambassador in Washington, Michael Thawley, wasn't available for comment, but the country's trade minister, Mark Vaile, noted in a prepared statement that s
"I have no doubt that FTA negotiations with the U.S. will present us with major challenges, but the benefits to the Australian economy will be in the order of many billions of dollars over time," said Vaile. "I am also convinced that negotiating an FTA will enable Australia and the United States to provide momentum to the Doha Round of multilateral trade negotiations, which remains Australia's highest trade policy priority."
In addition to Australia, retiring Sen. Phil Gramm (R-Texas) has introduced legislation authorizing Bush to negotiate FTAs with Turkey and Afghanistan. He said both countries deserve FTAs because of their roles as U.S. allies in the Middle East.
While the Republican victory might encourage trade with the rest of the world, it probably won't do much for Cuba.
Dennis Hays, executive vice-president of the Cuban American National Foundation, which opposes the Castro regime, says the re-election of Florida Gov. Jeb Bush — the president's brother — makes it even more unlikely that Washington's 40-year-old trade embargo against Cuba will be lifted anytime soon.
"I think clearly the president's position has been strengthened by the election," he said. "Our opponents keep hoping against hope that they will see some verification of their belief that Castro can be modified through trade and investment. If you want to believe in fairy tales, you can believe that Cuba under Castro represents some kind of business opporunity for Americans. But if you look at it objectively, you see that it isn't."
On the other hand, Luís M. Fernández, spokesman at the Cuban Interests Section in Washington, says the GOP's improved position in Congress isn't necessarily bad news.
"One of the most vocal groups trying to relax the trade embargo against Cuba is precisely the Republicans. Of course, the administration is trying to reinforce its policies, but at the same time, the farm states are really interested in trying to open business with Cuba, and their representatives are basically conservative Republicans."
Fernández added: "For us, what's important isn't Jeb Bush, but to work with anyone — farmers, universities, scholars — who wants to improve U.S.-Cuban relations."