WorldCity Business Magazine

On the battlefront

by Jeffrey Sparshott

The Bush administration had to fight for passage of a Central American Free Trade Agreement. How much will it risk for other trade accords?

CAFTA passed.

As you know, the Bush administration eked out a two-vote margin in the U.S. House of Representatives, allowing the Central American Free Trade Agreement to head to the president’s desk and into law.

The pact with the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua is old news by now, but the manner of victory is important to future free-trade agreements. The Bush administration and Republican allies spent a tremendous amount of time and political capital to get CAFTA through the House. The president personally sold the deal as a national security issue, and House leaders called it the biggest foreign policy vote of the year. The rhetoric was necessary because political opposition was entrenched and, economically, CAFTA amounts to only a rounding error in the grand scheme of the U.S. economy.

Now the question is: Will the White House and Congressional leaders be willing to do the same heavy lifting for Panama, Colombia, Ecuador and Peru? Thailand? Five southern African nations?

It depends on the Bush administration’s strategy of “competitive liberalization” established by former U.S. Trade Representative Robert Zoellick. That approach saw the United States pursuing trade agreements at multiple levels starting with the World Trade Organization’s 148 members but also including the Free Trade Area of the Americas and smaller bilateral deals like CAFTA.

“By pursuing multiple trade initiatives, we are creating a competition for liberalization that provides leverage for openness in all negotiations, establishes models of success that can be used on many fronts and develops a fresh dynamic that puts America in a leadership role,” Zoellick explained.

The strategy has seen mixed results. Zoellick masterfully argued in favor of free trade and maintained momentum for liberalization even during the heat of a presidential election. He won new deals with allies like Australia, Singapore, Chile and Morocco. But the strategy seems to have done little to persuade Brazil on the FTAA or other developing nations on WTO talks.

The WTO’s so-called Doha Development Agenda round of negotiations always has been the big payoff. The World Bank estimates that a “good” agreement could raise incomes in rich and poor countries by as much as $520 billion and lift 144 million people out of poverty in a decade. At least in the abstract, it is the agreement wanted by big business, advocates for the poor, consumer groups and others who command some attention in Washington.

The WTO negotiations are entering a delicate phase. The next deadline is December, by which time the WTO hopes to draft an agreement that would lower tariffs, drop some farm subsidies and in other ways ease the flow of global commerce.

If the WTO stays on schedule, Congress could vote on the trade pact in 2006 or early 2007, in line with the administration’s goal to hold a vote before Trade Promotion Authority expires. The authority allows the president to negotiate trade deals and submit them to Congress for an up-or-down vote.

In 1994, the law approving U.S. membership in the World Trade Organization passed the House, 288-146. That was the same environment in which the North American Free Trade Agreement, a year earlier, was approved 234-200. But the political climate is much different now, and it is not clear that multiple trade votes in Congress would help the administration’s top trade priority an ambitious WTO agreement.

The small bilateral deals almost an afterthought following the CAFTA vote could find themselves on the back burner. But the Bush administration is nothing if not consistent. While no longer U.S. trade representative, Zoellick, as deputy secretary of state, still plays an important role in economic policy. Since CAFTA, the administration has formally conducted negotiations with Thailand and the Andean nations. Republicans may not shy from a few more fights.

“I’m not of the belief that you lose your political capital by spending it,” U.S. Rep. Roy Blunt, a Missouri Republican responsible for lining up House votes, said the day after Congress approved CAFTA. “I certainly don’t see those agreements as the kind of pure political fight our opponents decided to make out of [CAFTA].”

Whether he’s right or not remains to be seen. As does the administration’s trade strategy for the coming years.