Busy Trade Agenda Expected for the Balance of 2006

The conventional political wisdom is that the free trade agenda takes a back seat during election years.

International trade initiatives are rarely popular and a common misconception -- which many politicians are unable (or unwilling) to correct -- is that the competition unleashed by free trade destroys U.S. jobs, closes factories and lowers U.S wages. While nothing is further from the truth -- international trade creates foreign markets for U.S. products and services, bids up U.S. competitiveness and leads to higher paying U.S. jobs -- trade remains a difficult sell for many voters, especially right before elections.

Coming into 2006, the Congressional trade agenda seemed especially sparse. Trade advocates and opponents alike were experiencing a strong sense of "fatigue" from the 2005 debate over the U.S./Central American-Dominican Republic Free Trade Agreement (CAFTA-DR).

Politicians have been less than eager to advance international trade agreements, particularly with concerns arising from the trade deficit, allegations of Chinese currency manipulation, or the hysteria surrounding a recent effort by Dubai Ports, a Middle East company, to take over management operations at a handful of U.S. ports.

Finally, many policy makers have had their attention focused on Hong Kong , Geneva and other foreign cities, where trade ministers have regularly gathered to negotiate on the Doha Round of global trade talks under the auspices of the World Trade Organization (WTO).

But 2006 has instead emerged as an extremely active year for international trade. Congress has already, and easily, approved the granting of permanent normal trade relations with the Ukraine -- a step made necessary because that country is about to join the WTO.

A vote on similar legislation with respect to Vietnam could occur over the next few months as that country prepares to accede to the world trade body as well. Textile and apparel companies are paying particularly close attention to the Vietnam trade vote since WTO accession will result in the elimination of about two dozen quotas the United States currently maintains on imports of textiles and apparel from Vietnam .

Although some textile interests hope to modify this agreement to create a China-style safeguard mechanism -- citing unfounded concerns that Vietnamese imports will displace U.S. production -- such modifications are unlikely to be accepted. The Administration has indicated that such a mechanism would put the United States out of compliance with its WTO obligations. Moreover, in exchange for quota free access to the U.S. market, Vietnam has already eliminated export subsidies to its apparel and textile industries -- a concession that no other country has ever made.

The Bush Administration continues to push its free trade agenda as well. Since last year's votes on the CAFTA-DR and a free trade agreement (FTA) with Bahrain , the Administration has completed negotiations for FTAs with Oman , Peru and Colombia , continued negotiations on FTAs with Thailand , southern Africa , Panama and the United Arab Emirates ; and initiated talks with Korea and Malaysia . Congressional action on the FTA with Oman should be completed by the end of July.

FTAs with Peru and Colombia may also see action this year, although it is unclear if action will be completed before the expiration on December 31, 2006 of the Andean Trade Promotion and Drug Eradication Act (ATPDEA). As a result, U.S. imports from those countries are likely to lose duty-free treatment for a period of time early in 2007.

Although Congress may consider legislation to bridge any such period, the leaders of the House Ways and Means and Senate Finance Committees (the two committees of principal jurisdiction on trade matters) appear reluctant to do anything that would reduce pressure on these countries to complete work on the FTAs.

A similar issue still confronts companies doing business under the CAFTA-DR. The result is that some companies still pay full duty on goods that meet the agreement's rules of origin. Congress is hoping to take up legislation to fix this short-term co-production problem this year. Congress also will likely pass legislation that modifies the rule of origin to implement a series of political agreements -- on pocketing, on the Nicaraguan TPL provision and, possibly, on socks -- reached last year right before CAFTA-DR was approved by the U.S. House of Representatives.

Several members of Congress are also pushing for action on a diverse group of trade preference programs, including those with Haiti , Africa and least developed countries.

Haiti seems the most likely to see action this year. Its ongoing economic crisis and the recent election of a new president, combined with strong support of key House members for trade preferences, make it a good candidate.

While there is strong support for the other preference proposals -- especially Africa in light of the imminent phaseout and expiration of the third-country fabric provision -- action remains doubtful. Likewise, a sense of "preference fatigue" has also delayed action on renewal of the Generalized System of Preferences (GSP), a program that provides for duty-free access for a range of goods from developing countries. That program is now set to expire on Dec. 31, and, as has happened several times in the past, it may not be renewed until sometime in 2007.

Separately, the Senate is now working on assembling a package of trade measures composed of about 800 individual and miscellaneous tariff and trade provisions designed to offer temporary duty suspensions and make technical corrections to existing trade statutes. The House has already passed a counterpart measure. Although the measure is viewed as non-controversial, it may prove so unwieldy that action gets delayed until a post-election session or until next year.

China trade issues remain at the forefront in Congress. Already the Senate has flirted with legislation that would impose a punitive tariff on Chinese imports in response to currency manipulation concerns. The House has passed its own China bill to provide more enforcement and set new targets to address a range of trade disputes with China . The Senate may consider a companion measure this year as well.

Finally, port/cargo security and customs activities have seen considerable action this year, partly in the wake of the Dubai Ports episode. The House has approved a comprehensive bill providing for improved scanning, authorizing existing programs (such as the Customs Trade Partnership against Terrorism) and creating restoration of trade protocols in the event of a terrorist attack. The Senate is working on a companion measure but has been mired in jurisdictional issues as it has tried to balance competing interests of different Senate committees.

Legislation that is not finalized by the end of 2006 -- which may be artificially extended if Congress convenes for a post-election "lame duck" session -- would die and have to be reintroduced in 2007. Because of the crowded agenda and the press of other business, many of the initiatives mentioned above may see some action but may not be enacted by year's end. Thus, a number of initiatives may be held over until 2007. Given the trade agenda that is already shaping up for that year -- unfinished FTAs, possible action from the Doha multilateral trade round and renewal of the President's Trade Promotion Authority (TPA) -- 2007 may turn out to be a busier trade year than 2006!

STEPHEN LAMAR is senior vice president of the American Apparel & Footwear Association.