A speech by:

Senator Max Baucus
Montana

Building a New Trade Consensus

A Colloquium Sponsored
by
The Global Business Dialogue and The New America Foundation

Washington, D.C.

January 11, 2001

 

 

I would like to thank Judge Morris of the Global Business Dialogue, along with

Steve Clemons and Greg Mastel of the New America Foundation, for arranging this

opportunity for me to speak on trade.  Alfred E. Neuman has said “I always take

the best seat at the ball game – the one between the hot dog vendor and his best

customer.”  The New America Foundation and the Global Business Dialogue are

among the best in Washington, and I am pleased to be here today

 

I appreciate Carolyn Brehm’s kind introduction, especially the mention that I am

Chairman of the Senate Finance Committee.  As Tom Daschle said when he opened

the current session of Congress last week as the Senate Majority Leader, I am

savoring every minute of these 17 days.  Carolyn, by the way, played a key role

last year in our successful effort to pass China PNTR, and I thank her for that.

 

I should note that this is Greg Mastel’s last program with the New America

Foundation.  As many of you know, in two weeks Greg will join the Finance

Committee as Chief Trade Counsel and Chief Economist for the Democrats, and I am

excited about Greg working for me again.  He will be very valuable as we pursue

important trade issues in the 107th Congress.

 

My top priority this year is to rebuild the domestic consensus on trade.  That

is, the consensus in support of trade liberalization and open markets in our

country and around the world.  There is a lot of activity internationally in the

trade area right now, especially bilateral and regional negotiations on free

trade arrangements.  But there is a limit to what can be done without the United

States.  We are the world’s largest market and remain the leader in setting the

framework for trade negotiations and trade priorities.  And, whatever goals any

of us have on trade are unlikely to be met unless we address head on the issue

of the domestic consensus in this country.

 

It is clear that the consensus for trade liberalization has been lost.  We have

twice been unable to approve legislating granting the President fast track

negotiating authority.  The WTO failed in the effort to launch a comprehensive

new round of trade negotiations in 1999.  And the demonstrations in Seattle

showcased the newly emerging popular concern and controversy about trade issues.

 

There is significant irony here.  After all, if you look at the record of

Congress last year, you see that we approved PNTR for China.  We passed a trade

bill on Africa and the Caribbean Basin Initiative.  We enacted a Miscellaneous

Tariffs Bill.  We approved legislation to fix the Foreign Sales Corporation, the

FSC. 

 

There are a number of explanations for the eroding consensus on trade. 

 

First, many believe that the benefits of globalization are inequitably

distributed.  Even if they benefit from globalization, many still feel that

those benefits are fragile, and, perhaps, ephemeral.  This sense of fragility

has been heightened in recent months by the stock market decline, by other

indicators of slowing economic growth, and by recent use of the “R” word,

recession. 

 

Second, the increasingly atomistic nature of our national legislative process

has contributed to the loss of a consensus on trade.  This is a problem that

goes far beyond trade issues, and I hope that we can get a bipartisan group

together this year to look closely at how we can make Congress work better in

the 21st century.  The days are over when a small group of Congressional leaders

made most key decisions.  That is good.  But we need effective management of the

Congressional process.  Modern communications, changes in how the media covers

Congress, and the growing influence of interest groups, have all contributed to

a weakening in the ability of the leadership to manage Congress. 

 

Twenty years ago, only a handful of Congressional offices had a staff member

with trade expertise.  Now, almost every Senator and House member has at least

one legislative assistant who follows trade issues closely.  And there are many

Senators and House members who themselves have become real trade experts.  This

is good.  But we have not made adjustments in the way the Congress works to

facilitate taking these discrete points of expertise and transforming them, or

aggregating them, into a more coherent whole.

 

Third, new concerns have been raised in the trade debate, specifically labor

rights and the environment.  These issues need to be accommodated before we can

make much more progress on trade liberalization. 

 

I believe very strongly in the importance of open markets and continuing trade

liberalization.  That is why I spent so much of my time last year leading the

China PNTR battle and working to end our country’s use of unilateral embargoes.

 

But, trade liberalization will not proceed without political support.  And there

will not be political support without public support.  We can only rebuild the

consensus by demonstrating to all our citizens that trade and expanding markets

help them and contribute to their prosperity and a better quality of life.

 

So, what needs to be done?  Let me suggest four areas we must address to begin

to rebuild the consensus on trade. 

 

First, we must address the legitimate concerns regarding labor rights and the

environment.  This means to make an honest effort to address the relevant issues

at the intersection of trade and labor rights and the intersection of trade and

environment.  Not symbolic and meaningless changes.  Not some PR fluff.

 

Let me repeat what I said in a speech I gave last month at the Washington

International Trade Association, where I outlined my trade agenda for the 107th

Congress:

 

In order for fast track negotiating authority to pass the Congress, we have to

find a way to accommodate labor concerns and environmental concerns in trade

agreements.  Otherwise, we will never see fast track.  This is a statement of

fact.  If you think that any President can simply muscle an old-fashioned fast

track bill through the Congress, you had better think again.  I cannot be more

emphatic in stating that we are in a new era, and we all need to work together

to create a middle ground on these issues. 

 

I am not suggesting that we can address all environmental and labor concerns in

a trade agreement.  However, we should be able to incorporate some key labor and

environmental issues in trade negotiations.  After all, we have environment and

labor side agreements as part of NAFTA.   Our recent textile agreement with

Cambodia includes labor rights provisions.  GSP involves labor rights

provisions.

 

We are in an era where international trade negotiations deal not only with

border issues, but also with domestic regulatory issues.  Intellectual Property

Rights is a domestic regulatory issue.  Sanitary and phyto-sanitary requirements

is a domestic regulatory issue.  Yet we have found ways to deal with them in a

multilateral context.  The WTO has declared in the FSC case that tax policy,

certainly a domestic issue, can be made subject to international trade rules.

Discussion thus far on competition policy has foundered on the difficulty of

dealing with the issue, not on whether domestic competition policy should be

insulated from an international context.  Why should the environment and labor

be declared off limits?  We need to recognize that basic labor rights have as

legitimate a role in trade negotiations as basic intellectual property rights.

And the same can be said for environmental issues.

 

Let me address labor rights and the environment in turn, although there are some

areas where the same comments apply to both issues.

 

On labor, the issue before us is the demand by organized labor in the United

States that internationally recognized labor rights, as enshrined in the

conventions of the International Labor Organization, be included in trade

agreements, and that these commitments be enforceable.  They insist that, at a

minimum, any dispute settlement mechanism in a trade agreement apply in the same

way to the labor rights provisions as they apply to any other provisions of the

agreement. 

 

The US/Jordan Free Trade Agreement responds to some of these concerns.  On

Saturday, President Clinton officially transmitted to Congress the US/Jordan FTA

and its implementing legislation.  This is a particularly interesting agreement

because it combines free trade with provisions relating to labor rights and the

environment, and is packaged in a strategic setting whereby this agreement

becomes the third piece in a puzzle that includes FTAs with Israel and with the

Palestinian Authority. 

 

Under the Jordan FTA, both countries agree that each has the right to establish

its own domestic labor and environmental standards and the right to determine

how to enforce those standards.  Both commit to recognize internationally

recognized labor rights as defined by the ILO.  Both commit not to relax those

labor and environmental standards to promote trade. 

 

Further, the dispute settlement section applies to all provisions of the

agreement, including the labor and environmental provisions.  According to the

FTA text, if the dispute is not resolved within 30 days of the panel report,

“the affected party shall be entitled to take any appropriate and commensurate

measure.”  Some have interpreted this to mean trade sanctions.  I don’t

interpret it in that way.

 

I think the Jordan agreement is a creative approach to finding a middle position

on trade and labor.  I hope that the debate on Jordan will help us move forward

in creating a middle ground.

 

Turning to trade and the environment, we should follow two principles.  One,

trade rules should not be used to prevent legitimate and reasonable

environmental protection.  Two, environmental regulations should not be used as

an instrument for trade protection.  We need to balance trade and environmental

goals.  Neither should trump the other. 

 

What I just said about labor rights and trade in the context of the Jordan FTA

applies equally to the environment, so I won’t repeat it.  But, let me give you

a list of additional policy actions we could take on trade and the environment.

 

First, make the WTO more transparent, especially the dispute resolution process.

 Both environmental groups and business would benefit from an open process.  The

Clinton Administration has made some efforts on this, but much more needs to be

done.

 

Second, integrate multilateral environmental agreements, so-called MEAs, into

the trade system.  Actions taken under an MEA to protect the environment should

not be subject to a challenge at the WTO.  The difficulty here is determining

what is an MEA that should be covered by this rule.  We could start by

grandfathering specific MEAs, such as the Montreal Protocol on

chloro-fluorocarbons and CITES on trade in endangered species.  We did this with

NAFTA.  Then we should develop rules for deciding which new MEAs will be

protected against WTO challenges.

 

The ILO has recently called on member countries to take sanctions against Burma

for its violations of labor rights.  So, the issue of the relationship between

the WTO and other multilateral agreements may involve not only the environment,

but also labor rights.

 

Third, the United States should conduct a thorough environmental assessment of

major trade agreements.  The Clinton Administration has made a good start on

this with its Executive Order, but it seems to need some perfecting.  The

assessment should begin early in the negotiating process and be dynamic,

continuing throughout the negotiations, especially through consultations with

the advisory committee process, once we fix that process.  We also need to do

this at the WTO. 

 

Fourth, we should eliminate all tariffs on environmental goods.  This is

something environmentalists and business agree on.  Developing countries would

be able to protect their environment at a lower cost.

 

Fifth, we need to deal with the so-called “pollution subsidy”, that is, the

practice of some countries who intentionally weaken environmental standards to

support exports or attract investment.

 

Sixth, we should develop a voluntary code of conduct for American companies for

their environmental activities.  This could include a commitment to report on

their environmental activities in overseas operations in the same way they do

for domestic operations.

 

Seventh, we need to look at production processes and methods, known as “PPMs.”

How a product is made does matter.  This is a very complex and controversial

issue, and we should begin some serious consideration of it.  Interestingly, I

recently learned that in 1912, the United States prohibited the import of white

phosphorous matches because of health hazards in their production. 

 

The second area in rebuilding the consensus on trade is to enforce our trade

laws.  In any society, failure to enforce its laws and rules leads to a

debasement in the functioning of that society.  Similarly in the international

trading system, failure to enforce trade laws leads to a proliferation of the

worst, most unfair, and damaging practices. 

 

This means that we must continue to deal with the unfair practices of our

trading partners through full enforcement of our anti-dumping and countervailing

duty laws. 

 

We must continue to deal with crisis situations where a surge of imports

threatens potentially irreparable harm to an American industry.  That means

active use of our safeguards law, Section 201. 

 

We must aggressively counter the efforts of some of our trading partners at the

WTO to undermine and overturn US trade laws.  They must learn that attacking US

trade law is not cost-free and that there will be a price to pay. 

 

We must continue to negotiate strong market opening agreements.

 

And we must work harder to ensure full compliance with new agreements, as well

as compliance with the hundreds of bilateral, regional, and multilateral

agreements we already have.  China, once it accedes to the WTO, will probably be

the greatest challenge.  But the record of Japanese compliance with trade

agreements is also extremely poor.  We need to do a much better job of

monitoring our trade agreements.  When our trading partners fail to comply with

a trade agreement, it corrupts the negotiating process and leads to a loss of

confidence in the trading system.  My proposal to create a Congressional Trade

Office is one way to help do this.

 

A third area in rebuilding the consensus on trade relates to providing

meaningful worker adjustment programs.  Our system of trade adjustment

assistance is not working.  The financing we provide for these programs is

utterly insufficient.  The programs often train workers for jobs that do not

exist.  The scope of the program is too narrow.  For example, we should figure

out a way to deal with adjustment on the farms.  And the structure of the

program is insufficient to sustain a worker’s life during the training process.

 

We must give an American worker, who loses his or her job because of imports, a

real chance to find a new quality job.  The program must include education,

on-the-job training, and transitional assistance.  We are not talking about a

giveaway.  We are talking about providing opportunities for those who have been

hurt and lost their jobs because of imports and the changes attendant to

globalization. 

 

At the same time, we need to look more broadly at the reasons for job losses.

Some argue that as many jobs are lost in America because of technological change

as because of imports.  We need to help those American workers and families

also.

 

The final area in rebuilding the consensus on trade is to ensure that citizens

feel that they are part of the process. 

 

That means we in Congress, as the elected representatives, must participate much

more actively in trade policy.  The Congress does not, and cannot, negotiate

trade agreements. We don’t implement trade agreements, and we don’t enforce

trade agreements.  But Congress can, and should, set the policy direction for

our country, establish trade priorities, and then exert oversight on how the

Executive Branch is implementing that trade policy and our trade laws.  We have

not done a very good job of this in recent years, and that must change.

Congress is a vitally important instrument to ensure that the public sees what

the Executive Branch is doing.  And Congress provides the critical vehicle for

citizens to feel that they genuinely have access to the trade policy process.  

 

Another way to make citizens feel that they are part of the process is to

improve the trade advisory process.  It must become more inclusive.  It must

become more open.  The trade advisory process is a creation of Congress, and we

need to start fixing it this year.  

 

We are at a critical juncture in trade policy.  For fifty years, the United

States has led the way to open markets and trade liberalization.  The U.S. took

the lead in building the world trading system.  It negotiated FTAs with Canada,

Mexico, Israel, and now Jordan, all the while resisting efforts to retreat to

protectionism.

 

But this grand campaign was only possible because there was a political

consensus in favor of trade liberalization.  If we are serious about leading the

struggle for open markets, we must, I repeat must, start by rebuilding that

shattered consensus. 

 

The case for trade liberalization may be compelling on the blackboard.  But

until Americans are convinced that the case makes sense for them and that their

concerns are addressed, this argument will not hold sway in the real political

world.

 

My advice to the new Administration, the business community, and other advocates

of free trade is simple: Before pursuing grand plans for a vast new trade

agreement, join me in rebuilding the consensus that makes those grand plans

possible.

 

Before I conclude and listen to your comments, let me raise one other important

issue.  Over the past week, there have been a number of reports in the press

that the position of U.S. Trade Representative was going to be downgraded and

that the USTR would no longer be a member of the Cabinet.  I am profoundly

concerned about these reports. 

 

Such an action would be a serious mistake.  It would damage our economy and be

inimical to our nation’s vital interests.  I urge President-elect Bush to ensure

that USTR is included in the Cabinet, and to ensure that we never return to the

days where trade was made subservient to foreign policy interests.

 

Trade today is equivalent to 27 percent of America’s Gross Domestic Product, up

from 11 percent in 1970.  Trade policy and trade negotiations are critical

elements if we want to see continued economic growth in our economy.  USTR, in

both Democratic and Republican Administrations, has been a key factor in

expanding the global economy and promoting US growth. 

 

Consider who has represented us as the US Trade Representative in the past.  Bob

Strauss.  Bill Brock.  Carla Hills.  Mickey Kantor.  Charlene Barshefsky.  These

are the best America has.  Through their leadership at home and abroad, trade

has grown exponentially.  We have seen unprecedented growth and the creation of

the vibrant and dynamic world trading system we have today. 

 

Downgrading USTR would send the worst possible signal to the rest of the world.

It would hamper our ability to negotiate further trade liberalization and open

 

markets globally.  The U.S. Trade Representative must be able to advocate

American interests at the highest levels of foreign governments.  I am pleased

by assurances I, and other colleagues in Congress, have received in

conversations with senior Bush staff that this downgrading will not happen.  But

we must remain vigilant.

 

Alfred E. Neuman once said “It’s a good idea to keep your words soft and sweet,

because you never know when you’ll have to eat them.”  On this issue – the

importance of trade to America and the need for USTR, both the agency and the

individual USTR, to play a strong leadership role in policy formulation and

international negotiations, my words will continue to be firm and unalterable. 

 

I would be happy to address your comments and questions.

 

– END –