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Can Charles Rangel Fix U.S. Trade Policy?
Peter Morici
The Bush Administration and the House Ways and Means Committee Chairman
Charles Rangel appear close to an agreement to strengthen the labor
rights provisions in pending free trade pacts with Panama and Peru. The
prospect that such provisions could be generalized to all trade
agreements is scaring the pants off unions and business lobbies alike.
Their angst is unfortunate, because stronger labor safeguards will
neither fix what really bothers organized labor about free trade nor
harm American commercial interests.
More below the fold ***********
The Democratic leadership is generally pro free trade, but a deal is
necessary to get new trade pacts through Congress. Many newly-elected
House Democrats received significant campaign support from organized
labor, and for years, unions have urged that trade agreements better
safeguard worker rights. Now unions are getting their wish but slowly
realizing it won’t do them too much good.
Virtually all members of the World Trade Organization have adopted the
eight core International Labor Organization conventions that prohibit
exploitive child labor, forced labor, repression of unions, and
discrimination in employment.
The most a free trade agreement or new WTO rules could do is permit the
United States to exclude imports made by workers denied these rights.
However, the scope of trade potentially affected would not be large,
because the ILO applies these standards flexibly, according to each
country’s level of economic development.
It is not acceptable for 14 year olds to work full time in the United
States but it is in Pakistan, and more rigorously enforcing ILO
standards won’t raise the minimum wage in developing countries. Hence,
incorporating labor standards in trade agreements won’t save U.S.
workers from competing with cheap labor from China or anyplace else, or
restore lost union membership.
U.S. businesses fear international standards, applied through trade
agreements, could negate U.S. laws regulating their workplaces.
However, compared to the ILO core standards, U.S. Department of Labor
regulations are strenuous, and American employers abiding by those
regulations have more to fear from an invasion of Martians than an ILO
inspector.
The important foreign trade practices shutting U.S. factories and
costing union jobs are already addressed by World Trade Organization
rules, but the U.S. government does not effectively assert American
rights to combat their harmful consequences.
At the top of the list are artificially undervalued currencies that
make products in China, India and other Asian countries falsely
inexpensive when sold in U.S. markets. In 2006, China and India dumped
more than $280 billion worth of yuan and rupee into international
currency markets to keep down the values of those currencies. That
created subsidies on exports to the United States averaging about 24
percent.
Throughout Asia, exports to the United States benefit from various
export tax rebates, low interest loans, industrial development grants,
and technology extorted on the cheap by foreign governments from
companies like Microsoft and General Motors.
Whatever monetary gains businesses in developing countries obtain from
compromising workers rights, those could never equal the harm imposed
on U.S. workers and businesses by currency manipulation, other
subsidies and technology extortion.
U.S. countervailing duty (CVD) laws permit businesses to petition the
Commerce Department for import duties that precisely offset the
benefits bestowed by foreign government subsidies. However, since 1983,
the United States has not applied countervailing duties on subsidies
paid by governments in non-market economies, including China. In a
recent case on coated paper from China, the Commerce Department
indicated it will likely abandon that policy but the outcome is less
than certain.
Moreover, although Federal Reserve Chairman Ben Bernanke has labeled
Chinese currency manipulation an export subsidy, the Bush
Administration has refused to apply the countervailing duty laws to
these largest of all subsidies regardless of what country applies them.
For Congressman Rangel, the deal on labor standards is a first small
step toward closing divisions within his own party on trade and forging
a more bipartisan approach to trade policy. Watching him work gives me
new respect for his skills and dedication, but let’s hope his
colleagues address the truly salient issues.
In 2007, the Ways and Means Committee will be considering various
changes to strengthen U.S. trade laws that defend against foreign
subsidies, as well as other unfair trade practices such as dumping
products in the United States at prices below their cost of production.
Hopefully, the Committee will find ways to patch the important
loopholes, including currency manipulation, and give American workers a
fair shake at competing in global markets.
Peter Morici is a professor at the University of Maryland School of
Business and former Chief Economist at the U.S. International Trade
Commission.
Peter Morici
Professor
Robert H. Smith School of Business
University of Maryland
College Park, MD 20742-1815
703 549 4338
Cell 703 618 4338
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http://www.smith.umd.edu/lbpp/faculty/morici.html
http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm
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