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Is the dozing giant awakening? President Barack Obama has outlined lofty goals for U.S. trade policy, but will his administration take the steps needed to back up the commitment to boost exports, trade and--as a result--create jobs in the U.S.?

In his 2010 State of the Union message, President Barack Obama announced a National Export Initiative and pointedly stated that "If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores." And he made a bold commitment to double U.S. exports in five years.

He didn't mean exporting American jobs. He meant exporting American products so that Americans will have more jobs. Jobs are still an element missing in the economic recovery, and Obama seems to be on the right track in equating increased exports with increased employment.

But fulfilling the commitment may not be as easy as stating his laudable and eloquent words. Since World War II, United States exports have tended to double every 10 years. To double in half that time, they will need to increase by about 15 percent a year--no easy task in a global economy gripped by lack of cash.

Still, the International Monetary Fund predicts that over the next five years, 87 percent of world growth will happen outside the U.S. That's where 95 percent of the world's customers are, and as Americans shift more of their disposable income into savings--now 2 percent of gross domestic product--American companies will have to look overseas if they want to find a bigger market.

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Such an explosion of exportation is as optimistic as it is essential. And it's not impossible. U.S. exports have been known to come close to increases of 15 percent in a year, though never for five years in a row.

Fortunately, even in a government torn by partisan conflict, export is an area where all, or just about all, can agree. Exports help companies and workers. They help balance the trade deficit, which helps the global economy grow.

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The Path to Policy

In the year preceding the president's big promise, the nation's businesses waited anxiously to see what the new government would do to stimulate trade. Needless to say, it was a busy and contentious year for the Obama Administration. Businesses were guardedly relieved to see that the government wasn't reacting to the crisis by putting up protective barriers. Such moves only tend to encourage other countries to do the same. Slapping tariffs on imported goods and making unreasonable demands on foreign governments might have populist appeal in times of financial trouble, but the executive and legislative branches have generally resisted the temptation.

But at the same time, U.S. trade policy seemed dead. No new initiatives were brought forth. No movement toward ratifying three bilateral trade agreements that have been on the shelf and ready to go for years. No bold outreaches to the World Trade Organization, no new agreements with other nations. In other words, nothing to stimulate exports.

Granted, it was a busy year of government bailouts, congressional bickering and bated breath as the economy circled the drain but didn't go down. Daniel Griswold, director of the Cato Institute's Center for Trade Policy Studies, says that trade policy was "on autopilot," and his opinion didn't change much when, in March, the president finally rolled out a 200-page trade policy agenda.

"I was struck by the vagueness of it all, the lack of specifics," Griswold says. "They [the administration] make statements that are perfectly fine, but there are no concrete steps, as in 'Congress should do this now.' It's all generalities, and without presidential leadership, history has shown that Congress won't move forward on trade negotiations."

Griswold's interpretation of the agenda confirms his belief that the administration "simply wants trade policy to go away" because it puts the president in lose-lose situation. He doesn't want to engage in protectionism because it would hurt the economy, but at the same time, he doesn't want to get caught liberalizing trade in such a way that it alienates his labor union constituents.

Priorities Shape Programs

But one man's vague generalities may be another man's guiding philosophy. The president's agenda may not direct Congress on specific steps, but it does lay out the multi-pronged priorities and the principles that will give shape to programs and initiatives.

The U.S.-China Joint Commission on Commerce and Trade (JCCT) will continue talks on a variety of touchy of touchy issues. A Trans-Pacific Partnership initiative will work on a complex trade agreement among a network of nations. Countries in need of foreign aid will be able to link into a Trade Capacity Building initiative.

Countries will be induced or encouraged to respect a rules-based international trade system. Countries that impede the importation of American products will find out what Obama means by "new enforcement tools."

The pursuit of rules-based trade and enforcement tools is anchored in the World Trade Organization's system of multilateral trading rules and dispute settlement. For a decade now, the WTO has been trying to advance global trade rules though a series of meetings known as the Doha Round.

The talks--largely focusing on agricultural issues--have bogged down, and they are likely to stay that way until someone picks up the reins and gets the cart moving again. This will require persuading many countries to make counterintuitive moves to reduce their trade barriers during a time when every country wants to give their businesses all possible protection.

Griswold says that President Obama is the leader that the Doha Round is waiting for, but that "trade policy has been caught up in the partisan politics in Washington." Among the guilty, he says, are labor unions that don't understand that making the United States more open to imports will be balanced by other countries opening up to U.S. imports.

Edward Gresser, trade policy director of the Democratic Leadership Council, acknowledges that the president has to listen to organized labor while trying to get it to do what's good for itself. "Every administration has its political coalition and is careful about divisions within it," Gresser says. "The Bush administration had the same sort of problem with textiles and sugar and subsidized agriculture, and in the end, he wasn't willing to do what he had to do for the Doha Round."

Gresser sees the Obama Administration inheriting a weak and wobbly trade agenda from previous administrations and even his own Democrats. Part of that agenda is three unratified bilateral trade agreements with Panama, Colombia and South Korea. Another is the Doha Round, mostly focused on agricultural issues.

The third part is the link between trade and labor standards in the least developed countries, which is important to many Democrats in Congress.

"There's a mismatch between what the country needs--to double exports--and the agenda handed to the new administration," Gresser says. "What the U.S. Trade Representative and the Commerce Department are doing is broadening the agenda. We have to put Canada, the European Union, Japan, China and Mexico at the center of our trade policy."

Because that's where the money is--these countries represent 60 percent of U.S. trade.

Go Where the Money Is

China, of course, is the big one--not yet as big as Canada but getting there. While a lot of the business with China is incoming, it is also the destination of huge amounts of exports. By November 2009, U.S. exports to China, worth $61 billion, accounted for 6 percent of all U.S. trade. The Department of Commerce estimates that 100,000 jobs would be created if trade with China increased by just one percent.

Issues with China are complicated, involving everything from exchange rates to human rights to relations with North Korea. JCCT has made progress on intellectual property, access for American wind energy companies, exports of American pork and imports of Chinese tires. But there's more to be done.

BJ Shannon, an attorney specializing in international trade at Alston & Bird LLP, says that a significant emerging issue in American-Chinese trade policy is China's indigenous innovation accreditation system, which holds that for government procurement projects, Chinese technology should receive preferential treatment.

But while American companies have been complaining about that, many have also been calling for a stronger "Buy American" rule at home. Though federal policy does not require that economic stimulus funds be spent on American products, some states had "Buy American" stipulations for government procurement and spending of stimulus funds until a lawsuit by Canada forced a compromise.

The trade policy agenda also recognizes that emerging markets are crucial to American trade prospects. It specifically mentions the bilateral free trade agreements with Columbia, Panama and South Korea. These agreements have been signed and are ready to be presented to Congress, but according to the trade agenda, certain points of the agreements need to be reconsidered.

Bill Lane, director of Caterpillar Inc.'s Washington, D.C., office, says "the game is in the big markets--the Japans, the Malaysias, the Thailands, the Indonesias," but he would like to see the three free trade agreements expedited--"a freebie," he says. "The negotiations are done. It would be an immediate tax reduction on U.S. exports and wouldn't cost the taxpayer anything." Of special interest to his company is the biggest public works project in the world, an expansion of the Panama Canal.

"Not passing these agreements is like having a quarterback who won't throw to an open receiver," he says. "We need to start moving the ball down the field, and that's a way to do it quick."

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But quick isn't likely. Shannon sees agreements stalled. "Panama has the most chance of moving this year," she says. "But there are concerns about labor rights and the country being a tax haven. With Colombia, there are concerns about violence against labor union officials. And South Korea, the biggest of the deals, involves a huge volume of trade, much of it potentially automobiles, and there's concern whether the agreement gives U.S. products enough access to the Korean market. It's just not clear how things will be worked out."

The Trans-Pacific Partnership talks have just gotten underway. The objective is to integrate the economic interests of the U.S. with Australia, Brunei, Chile, New Zealand, Peru, Singapore and Vietnam. The administration hopes that as a "broad, deep and high-quality 21st century regional trade agreement" comes together, other countries will want to become part of it. Everything from supply chains to labor standards is on the table. Promising to consult widely with American industry and Congress, the administration recognizes the danger of progress slowing as too many interests become involved.

The administration will also be involved in talks with trading partners in the Asia-Pacific Economic Cooperation forum. Though not working toward formal trade agreements, the talks aim to promote the kind of economic development that supports increased trade.

Meanwhile, a bill in the House of Representatives, the TRADE Act, will, if passed, establish certain issues that must be addressed in all trade agreements: Labor, the environment, investor rights, human rights and intellectual property rights.

Rep. Mike Michaud (D-Maine), sponsor of the bill, said the act will "correct our past trade and globalization policy mistakes" and establish "a mechanism to revise previous agreements and provides a template for future trade agreements to ensure that they are good for U.S. workers, businesses and farmers alike."

The president's National Export Initiative created an Export Promotion Cabinet. It will bring together leaders from the departments of Commerce, Agriculture and State, the USTR, the Small Business Agency and the Export-Import Bank.

In January, the president gave each member of the cabinet 180 days to submit a detailed plan on how it will enhance exports. Those plans are due by early summer. If they are supposed to add up to a doubling of exports in four and a half years, the executive and legislative branches are going to have to move quickly to give them the support they need to flourish. And they may just do that, given that export is one thing everyone can--or should--agree on.

GLENN A. CHENEY (glenncheney@comcast.net), a freelance writer in Hanover, Conn., writes frequently for Financial Executive on subjects pertaining to business, finance, accounting and tax.
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Title Annotation:U.S. TRADE POLICY
Author:Cheney, Glenn A.
Publication:Financial Executive
Geographic Code:1USA
Date:May 1, 2010
Words:2013
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