Sticking Points On Trade Turn Into Tipping Point

By Steven Pearlstein
Friday, May 11, 2007

On the surface, it's hard to see how a couple of trade treaties with small countries to the south could suddenly become the decisive battleground in the war over trade and globalization. After all, if the entire economic output of Panama were exported to the United States, would anyone here notice? Is there an American alive who worries about the competitive threat from Peru?

But since NAFTA, the opening of China and the rise of outsourcing to India, the bipartisan consensus for trade liberalization has disappeared. Wal-Mart prices were great, but not if they meant Wal-Mart wages and benefits for wide swaths of the middle class. Why should we approve any new trade treaties, even minor ones, until concerns about job loss and wage stagnation are addressed?

Unfortunately, the issue hasn't really been framed that way. In a Washington where partisanship and special interests rule, the trade debate was reduced to legalistic arcana concerning what labor and environmental standards were or were not included in the text of trade treaties. These were proxy issues for the real debate, but ones that could be shaped and manipulated by the special interests -- the anti-trade labor unions and the pro-trade business organizations -- who for a decade now have battled to a standstill.

All of which explains why it is a major achievement that the White House and congressional Democrats struck a deal yesterday clearing the way for approval of the Peru and Panama pacts. The compromise wording on labor and environmental standards can serve as a template for trade treaties or legislation. More importantly, the agreement could liberate trade from the stalemate imposed by unions and the business community, permitting a broad national conversation about competitiveness, the social compact and repairing the frayed economic safety net.

On the key sticking point of labor standards required of our trading partners, organized labor won on points: International Labor Organization standards will be included in the text of treaties and enforced like any other provision, with no exceptions for the United States. In this case, however, the standards aren't the ones contained in eight separate ILO "conventions," which the United States never ratified, but vaguer ones contained in a 1998 "declaration." The effect was to insulate the United States from a body of ILO case law that business considered hostile.

A big loser was the pharmaceutical industry, which fought for a favorable interpretation of how long trading partners must wait before introducing generic versions of U.S.-patented drugs. The deal agreed to by the White House: When the drug goes off patent in the United States, it goes off patent everywhere.

For the moment, organized labor has put on ice a trade treaty negotiated with Colombia, where labor leaders have been shot and killed. Although the Colombian government is now providing armed guards for many leaders, Democrats insist implementation of the treaty be made contingent on more progress in that country. Although this treaty is more important, geopolitically, than the Peruvian and Panamanian treaties -- Colombia remains an important U.S. ally, refusing to join Venezuela's anti-American agitation -- the chances of working all that out are 50-50 at best.

And negotiators will probably have to return to South Korea to find some mechanism to tie a proposed reduction in the 25 percent U.S. tariff on imported SUVs to greater penetration of U.S.-made cars in the Korean market.

It tells you how dug in everyone had become that it took six months, and the almost daily involvement of a dozen of the highest-ranking officials in the U.S. government, to get even two modest agreements approved. A lot of the credit goes to Charlie Rangel, the chairman of the House Ways and Means Committee, for patiently bringing organized labor along while walking the walk on bipartisanship by including his Republican counterpart, Jim McCrery, every step of the way. The elegant breakthrough on labor standards was largely the handiwork of Susan Schwab, the U.S. trade representative, who just wouldn't give up. Treasury Secretary Hank Paulson and the Business Roundtable's John Castellani both kept the focus on the big picture, while White House aide Barry Jackson helped to assure business groups they'd be better off with the deal than without it.

All along, it had been the hope of Paulson, Rangel and others that a deal on the pending treaties would generate enough political momentum and bipartisan goodwill to move everyone on to a more ambitious agenda -- one that would renew the president's authority to negotiate new trade treaties in exchange for better ways to share the benefits of trade broadly among American workers.

The traditional response to dislocations caused by trade, "trade adjustment assistance," was never particularly effective, and makes even less sense in a world where economic dislocation can be caused as easily by shifts in global capital or technological changes as by plant closures. At the same time, global competition is challenging the U.S. model in which workers rely on their employees to provide social benefits such as health care and retirement that in other countries are provided through government-run social programs. That creates an ideal opportunity to fashion a new social compact among companies, workers and government.

Obviously these are big, hairy issues that would be difficult to resolve in two years, let alone by a politically unpopular lame-duck president and a Congress with thin Democratic majorities. But they could have been teed up in a way that would have ensured that globalization and what to do about it was a top policy issue in the upcoming presidential and congressional campaigns.

The disappointing reality here is that while a compromise on a couple of trade agreements has finally been hammered out, and some old roadblocks cleared, we've yet to begin a long-overdue national discussion about retooling the American economic system for a new era of global competition.

Steven Pearlstein can be reached

© 2007 The Washington Post Company