The United States is falling behind many countries in terms of establishing trade agreements. As a result, U.S. companies increasingly are at a disadvantage with foreign competitors that have preferential access to attractive export markets.

For example, of the estimated 130 free trade agreements (FTAs) in force around the world today, only two include the United States. And, only 11% of world exports are covered by U.S. FTAs, compared with 33% for European Union FTAs and customs agreements. Trade Promotion Authority may provide the solution.

More Trade Agreements Are Negotiated Without U.S. Involvement

In recent years, numerous free trade agreements, bilateral investment treaties, and mutual recognition agreements have been negotiated and implemented around the world. Unfortunately, the United States is not party to them.

For example, Mexico has free trade agreements with at least 28 countries, almost all of which were signed since 1990. The European Union has negotiated free trade agreements with 27 countries, and has begun discussions with Brazil and others to establish new ones. Plus, South Africa, Brazil, Canada, China, and others also have begun to negotiate new agreements.

The U.S. Is at a Loss

The United States currently has in force two free trade agreements: one with Israel and one with Canada and Mexico under the North American Free Trade Agreement (NAFTA). The United States has completed negotiating, but has not received Congressional approval of a free trade agreement with Jordan, and is working on agreements with Singapore and Chile.

What is the impact on U.S. companies and their workers? As international competitors gain preferential access to lucrative markets, U.S. firms are put at a competitive disadvantage since their products are subject to trade barriers, which increase their landed prices and decrease their attractiveness.

Furthermore, since potential U.S. trade agreements are not in place, U.S. products, services, and investment are subject to unfavorable standards and regulations, and exclusion from investment protection and liberalization initiatives.

Trade Promotion Authority (TPA)

To the disadvantage of many U.S. exporters, importers, and investors, Trade Promotion Authority (formerly known as Fast Track negotiating authority) has not been renewed since 1994. As a result, the United States has not been able to successfully negotiate new trade accords and is losing out to countries that have.

TPA, which served Presidents Nixon, Ford, Carter, Reagan, Bush, and Clinton, was called for in President George W. Bush’s budget address to the nation on February 27, 2001.

How It Works - What It Does

TPA requires Congress to pass or reject trade agreements — without making any changes. Without it, foreign governments are reluctant to make agreements and concessions that could be changed later by Congress.

Since 1974, when TPA was first implemented, U.S. trade agreements have significantly opened foreign markets for U.S. exporters, resulting in tremendous growth in sales abroad. Under TPA, trade agreements such as the Tokyo Round, the Uruguay Round of the GATT, and NAFTA have eliminated numerous foreign barriers to U.S. trade and investment.

Unfortunately, for many U.S. exporters, importers, and investors, the absence of TPA has prevented the U.S. from keeping up with global competitors. For example, Canada and Chile forged a trade agreement that created freer access to each others’ markets. This has favored Canadian companies a great deal, but has put U.S. companies at a disadvantage.

The proposed Free Trade Agreement of the Americas (FTAA), which will extend NAFTA throughout Latin America, is unlikely to be completed without the Congressional ability to have an up or down vote.

What’s the Hold-Up?

Trade opponents claim that Trade Promotion Authority is an inherently undemocratic and secretive process. Trade proponents believe this to be untrue. Since no administration wants to submit a trade agreement to Congress that will be rejected, Members of Congress are routinely consulted during negotiations.

While trade agreements cannot be amended on the floor, Congress has ample opportunity to do so beforehand. And, as the final democratic check, Congress can simply reject the deal.

Adding Labor and Environmental Language to Trade Promotion Authority

In a move to obtain a majority of 218 votes in the House of Representatives on TPA this year, Members of Congress likely will add labor and environmental language to a forthcoming bill. This may be similar to the NAFTA labor and environment side agreements.

Many Members of Congress, however, feel this language should be advanced in other, non-trade legislation, while others wish to use trade as an incentive for developing countries to pay greater attention to these issues.

The Backlash Against Free Trade and Globalization

Trade opponents feel that past U.S. free trade agreements, as well as globalization, are not in the best interest of the U.S.

Globalization is a process that involves the integration of national markets through international trade, foreign direct investment, and portfolio investment. Based on free-market capitalism and powered by advances in telecommunications, transportation, and finance, globalization has empowered companies and individuals to generate new wealth in ways undreamed of just a few years ago.

But globalization is also forcing difficult changes similar to those introduced by the industrial revolution — and not all Americans are able to adapt. As a result, the primary challenge of globalization is to exploit the greater upside while minimizing the lesser downside.

Globalization Benefits Developing Nations

According to the Harvard University report, Economic Convergence and Economic Policies, developing countries with open economies grew by 4.5% a year in the 1970s and 1980s, while those with closed economies grew by 0.7% a year. At this rate, open economies double in size every 16 years, while closed economies double every 100 years.

According to the Washington, DC-based Progressive Policy Institute report, Globalization, Poverty and Inequality, “No country has managed to lift itself out of poverty without integrating into the global economy.”

And who would know this better than former Mexican president Ernesto Zedillo, who said: “In every case where a poor nation has significantly overcome its poverty, this has been achieved while engaging in production for export markets and opening itself to the influx of foreign goods, investment and technology — that is, by participating in globalization.”

Opportunities and Challenges Ahead

Globalization can’t be slowed down since no one is at the controls. However, with TPA, the U.S. will be better positioned to seize trade opportunities.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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