Bush's new trade provisions worrying

The best way to raise standards in developing countries is to open our markets to their products and allow them to grow

by Daniel Ikenson and Sallie James

Daniel Ikenson is associate director and Sallie James is the policy analyst with the Cato Institute's Center for Trade Policy Studies.

May 11, 2007

Yesterday, the Bush administration acquiesced to Congressional Democrats' demands that pending trade accords include provisions for environmental and labor standards. The administration's accession to these demands bodes poorly for potential U.S. trade partners around the globe.

To the person who feels more than he thinks, yesterday's agreement between Congressional Democrats and the Bush administration to require stricter labor and environmental provisions in trade agreements must sound like progress. What's not to like about forcing business to be nicer to workers and more respectful of the environment?

But there's less there than meets the eye. The deal constitutes a political victory for Democrats in Congress, who compelled the administration to swallow U.S. union demands, but is unlikely to lead to any new trade liberalization (another union wish). Forging trade policy is a balancing act: the more an agreement is limited to reflect domestic political demands, the less likely prospective trade partners are to see the benefit of agreeing. With respect to the three Latin American agreements, those countries will now have to reopen debate in their legislatures, which might reject the terms.

The elusive Doha Round of multilateral trade negotiations, which this new pact is supposed to advance, will be much more difficult than it already is because most of the countries negotiating have articulated their opposition to stricter labor standards backed by the threat of sanctions.

This new agreement is troubling. Not only is it asking FTA countries, all of whom are poorer than the U.S., to adopt labor standards that might not be appropriate, but the agreement specifically says that lack of resources or other priorities are not a valid excuse for lack of enforcement. Similarly, breaches in labor or environmental standards are subject to the same penalties as other FTA obligations. In other words, the U.S. could raise tariffs on imports if the FTA country does not live up to the required standards. The section on government procurement allows U.S. Federal and state governments to condition government procurement contracts on 'acceptable' conditions of work and wages. Depending on how that principle is reflected in the final drafting language, it is a worrying development.

The best way to raise standards in developing countries is to open our markets to their products and allow them to grow.

This article appeared in the Spero News on May 11, 2007.