New messenger, same mandate

December 23, 2008

Kevin P. Gallagher— Kevin P. Gallagher is professor of international relations at Boston University and co-author of “The Enclave Economy: Foreign Investment and Sustainable Development in Mexico’s Silicon Valley” and “Putting Development First: The Importance of Policy Space at the WTO.” The opinions expressed are his own. —

On the campaign trail, President-elect Barack Obama pledged to rethink U.S. trade policy.   The initial nomination of Xavier Becerra as United States Trade Representative was a signal that Obama will work to fulfill that promise. Congressman Becerra declined the offer and former Dallas Mayor Ron Kirk has been chosen to head the office instead.  Given Kirk’s enthusiastic support for NAFTA, he will receive close scrutiny as he takes over a USTR that has the mandate of rethinking U.S. trade policy.

Regardless of the messenger, Obama has pledged to fundamentally change U.S. trade policy.  To this end, there are four early priorities for Kirk and Obama: honor existing commitments under the WTO, press for an equitable completion of the Doha Round, conduct a thorough evaluation of major U.S. trade agreements, and enact comprehensive trade adjustment assistance legislation.

The immediate first step is to honor the WTO ruling that deemed that the $3.2 billion in annual cotton subsidies and $1.6 billion in export credits violate trade rules.  The Institute for Agriculture and Trade Policy estimates that U.S. cotton subsidies caused damages of $400 million between 2001 and 2003 alone for poor African cotton-producing countries, where more than 10 million people depend directly on the crop.

Returning to multilateralism by honoring the cotton ruling would not only aid poor farmers but would also allow the U.S. to regain legitimacy at the WTO by sending signal to developing countries that the U.S. no longer preaches a global trade policy of “do as we say, not as we do”.

Second, Obama and Kirk should move to complete the Doha Round on terms that benefit both the U.S. and its trading partners.  A core principle of a reconfigured Doha Round should be the recognition that developing countries need the policy space to deploy the kinds of government measures that have been proven to work for development in the west.  According to separate studies by the World Bank and the Carnegie Endowment for International Peace, the deal debated while Bush was in office would have yielded only $6.7 billion to 21.4 billion (or less than a penny per person per day) for the poor.  Rich countries were projected to see per capita income gains 25 times those in developing countries. (Read the full report here.)

Third, Obama’s first year in office should also honor his pledge to evaluate impacts of the North American Free Trade Agreement (NAFTA) and other major trade agreements. It is essential that the assessment analyzes the economic, environmental, social and regulatory impacts of past agreements on the U.S. economy– and on our trading partners.

Under NAFTA, Mexico did witness a surge in exports and foreign investment, and for a while a bump in employment. However, such increases did not translate into growth and prosperity – economic growth in per capita terms has been just over 1percent annually and poverty, inequality, and environmental degradation remain persistent.  This has cost the U.S. in terms of lost markets and raises political tensions at home due to the fact that NAFTA’s failure in Mexico gives 500,000 Mexicans a year the incentive to migrate to the U.S.

Until a comprehensive assessment of NAFTA and other past agreements is completed, there should be a moratorium on new U.S. trade agreements – including the pending deal with Colombia. According to the UN, the agreement as tailored will actually make Colombia worse off by up to $75 million or one-tenth of 1 percent of its GDP. In addition, reducing tariffs will strip the government of funds needed for combating guerrillas, fighting crime and developing their economy. According to a new study by the Inter-American Development Bank, the tariff revenue losses for Colombia will amount to $520 million per year.

The findings from a comprehensive review should guide the formation of new Trade Promotion Authority legislation that forges clear guidelines for the renegotiation of past agreements and provides a template for future trade policy. Two Democrats, Senator Sherrod Brown of Ohio and Congressman Mike Michaud of Maine, have recently introduced the Trade Reform, Accountability, Development and Employment (Trade) Act that can provide a guidepost for the assessment process. The Trade Act requires a review of existing trade agreements and a renegotiation of those agreements based on the review. It sets terms of what must and must not be included in future trade agreements.

Finally, any new U.S. trade policy should be coupled with strong Trade Adjustment Assistance legislation in the United States that extends assistance to more manufacturing workers and to services workers, creates incentives to redevelop communities hit by the loss of manufacturing, extends healthcare to those affected by plant closures and reforms unemployment insurance for those displaced by trade policies.

Barack Obama supported these types of policies when serving in Congress.  He made a promise on the campaign trail to rethink U.S. trade policy while president.  Ron Kirk’s job is to help make these promises a reality.

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