Trade bill passes Congress; "trade" deal doesn't

Last week, the House of Representatives passed a trade bill while not passing a “trade” bill. The trade bill is H.R.1295 – Trade Preferences Extension Act of 2015. That bill pass the House on Thursday, June 11. Or to be completely accurate, the House passed an amendment to the Senate amendment to the bill. But since the two amendments are almost the same (differing in the budgetary offsets needed to pay for the bill), the bill is all but done.

The next day, Friday June 12, The House failed to advance H.R.1314 – Trade Act of 2015. In a convoluted parliamentary maneuver, the House approved part of the bill (technically the Senate amendment) while rejecting another part of the bill. Because of the way the voting was structured, this had the result of putting the bill in a legislative limbo.

I call this second bill a “trade” bill in quotations because it is fundamentally different from a trade bill.

First, the superficial differences. The Trade Preferences Extension Act reauthorizes some specific trade agreements. It extends the African Growth and Opportunity Act which grants lower tariffs and other trade preferences to sub-Saharan Africa and extends the preferential duty treatment program for Haiti. It reauthorizes the Generalized System of Preferences, which is a wider set of tariff breaks for certain developing countries. It also makes a number of modifications to the U.S. tariffs on specific products (such as “Recreational performance outerwear containing 70 percent or more by weight of silk or silk waste”).

The Trade Act of 2015 is more a procedural bill consisting of two parts. One part establishes Trade Promotion Authority (TPA) which grants the President negotiating authority and sets up a “fast track” process for Congressional consideration of agreements reached under that negotiating authority. Under fast track, Congress must vote up or down on the agreement within a certain time – no amendments or filibuster. The other part reauthorizes the Trade Adjustment Assistance (TAA) program to help workers and companies negatively affected by trade agreements.

These are superficial differences because the TPA negotiating authority is more than a simply procedural matter. It is essentially a proxy for the already ongoing Trans-Pacific Partnership (TPP) trade negotiations, and to a lesser extent the Transatlantic Trade and Investment Partnership (T-TIP). Stopping TPA means stopping TPP. Voting for TPA essentially means voting for TPP.

But there is a more fundamental difference between the two bills. The Trade Preferences Extension Act is, at its heart, an old fashioned tariff bill. For the most part the preferences extended under the various programs are in the form of lower tariffs. The Trade Act of 2015 goes well beyond tariffs. As Larry Summers pointed out in a Washington Post op-ed:

The world’s remaining tariff and quota barriers are small and, where present, less reflections of the triumph of protectionist interests and more a result of deep cultural values such as the Japanese attachment to rice farming. What we call trade agreements are in fact agreements on the protection of investments and the achievement of regulatory harmonization and establishment of standards in areas such as intellectual property.

This is a point I have noted numerous times before (see earlier postings). And it is what makes “trade” agreements so difficult. The shift from trade to economic harmonization changes the dynamics of the negotiation process. The old dynamics don’t work. During my Senate staff career, I was involved in the beginning and the end of the Uruguay Round. When we finally passed the implementing legislation, I mused out loud that I thought this would be the last global round of trade negotiations. None of my colleagues agreed – and some of the old hands seemed taken aback at such heresy. They argued that you can only get an agreement by linking everything in a big package. (In diplomacy – this is known as “linkage.”)

Almost three decades later, I still think I am right. Linkage doesn’t work the way it used to. In previous negotiations with a focus on tariff reduction, the dynamic was simple. I’ll reduce my tariffs on steel if you reduce your tariffs on autos. This allowed for a win-win (from economists point of view) situation that pushed for lower and lower tariffs. Everyone agreed that the end point was lower tariffs. The question was how to get there.

In the new talks, it is unclear how the trade-offs work, and in what direction the dynamics points. I’ll lower my tariffs on steel if you increase your copyright protection to 100 years? I’ll allow you to subsidize your aircraft industry if you don’t ban my genetically-modified beef? I’ll decrease my agricultural subsidies if you reduce regulations on investment banking?

We don’t have any agreement within the U.S. on what the end point should be. We have a general idea – “open economies” – but we differ dramatically on what that means and on the specifics. For example, the U.S. is in the middle of a fierce debate over patents (aka intellectual property rights – IPR). Given that debate, what set of rules on IPR are we trying to include in trade agreements? These internal clashes over what the rules should be makes it that much more difficult to agree with other nations on what the international best policy should be.

I’m not sure what will happen to the “trade” bill. As of this writing, the Speaker of the House has scheduled a re-vote this week on the part that failed. But that might not be the only parliamentary strategy in play. Suffice it to say that even if the “trade” bill passes, it will not be the end of the debate. And we should all recognize that this debate is no longer about trade in the way we used to think about it.