Trade | |
Fast-Track Free Trade |
This week Bill Clinton will send Congress a proposal to provide him with
"fast-track" trade negotiating authority. Under fast-track, Congress
is prevented from amending any trade agreements reached by the president
with other countries. The final agreement may only be voted up or down.
It is generally believed that without fast-track authority it is virtually
impossible to gain trade concessions from other countries, because reciprocal
concessions by the U.S. could too easily be blocked by Congress. Since the 1930s, Congress has recognized that for institutional reasons
it is prohibitively difficult for it to write trade liberalization bills
on its own. Parochial political pressures inevitably force members of Congress
to vote for protectionist measures, even when they recognize that free trade
is in the nation's best interest. After the congressionally-written Smoot-Hawley
tariff of 1929 proved to be an economic disaster for the country, helping
to bring on the Great Depression, Congress ceded much of its trade authority
to the president. Presidents find it easier to resist special interest trade protection
because they represent the entire country, rather than an individual state
or district. This gives presidents a broader perspective than members of
Congress and has made it possible to negotiate successive rounds of trade
liberalization. This trade liberalization has led to a vast expansion of
world economic growth that has benefited Americans and foreigners alike. However, while the country has a whole has unquestionably gained from
reduced restrictions on trade, some workers and industries have suffered.
These groups are strongly opposed to renewal of fast-track authority and
are actively fighting the legislation in Congress. In particular, the AFL-CIO
has vowed an all-out effort to kill fast-track unless American workers are
protected against imports from countries with inadequate labor standards.
Such standards include prohibiting forced labor and child labor, and allowing
freedom for collective bargaining. The AFL-CIO believes that free trade leads U.S. companies to relocate
their operations in countries where labor costs are lower. However, empirical
research has found very little of this actually occurring. In two new papers
from the National Bureau of Economic Research, economists David Riker and
S. Lael Brainard find that the foreign operations of U.S. companies tend
to complement rather than compete with their domestic operations. In other
words, foreign investment does not come at the expense of American workers. Another recent study by economist Norman Fieleke of the Federal Reserve
Bank of Boston looks at the issue of labor standards. He found that failure
to observe labor standards actually impairs a country's competitiveness.
Although the lack of labor standards does reduce labor costs, it also discourages
education and training of workers and impedes labor mobility. This reduces
productivity, which inhibits competitiveness. Fieleke also looked at whether low-wage countries enjoy a comparative
advantage in trade of manufactured goods. He found no relationship between
wage rates and net exports. The reason is that low-wage countries generally
have low productivity levels, while high-wage countries like the U.S. have
much higher productivity. The low productivity cancels out the cost advantage
of low wages in most developing countries. Congress should support President Clinton's call for fast-track authority;
but this does not mean that it should not demand something in return. This
is the Clinton Administration's first major legislative initiative since
Republicans took control of Congress. Considering how many congressional
initiatives Clinton has blocked, Republicans should demand some quid pro
quo. A good candidate would be a promise by Clinton to sign legislation
preventing a government shut-down in the event of a budget impasse. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis,
September 11, 1997. |