Bridges Weekly Trade News DigestVolume 15Number 29 • 7th September 2011

Trade Pacts, China Currency Legislation Could All be on the Table as US Congress Returns

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Major movement could be on the horizon for Washington’s trade agenda as Congress returns from its August recess, with one trade-related bill - the renewal of the lapsed Generalized System of Preferences - tentatively scheduled for a vote in the US House of Representatives later today. The renewal is expected to be the first step in a complicated legislative process to pass three major US FTAs, along with a worker aid programme, by early October.

The ratification of the US’ FTAs with South Korea, Colombia, and Panama, which had appeared poised for swift passage earlier this summer, has faced repeated setbacks over the last few months, with Republicans sparring with both Democrats and the White House over the renewal of extensions to the controversial Trade Adjustment Assistance (TAA) programme.

The TAA programme provides help to workers displaced by foreign competition and is particularly unpopular among Republicans. President Barack Obama has insisted that the extensions to TAA, which expired earlier this year, must be passed if these FTAs are to move forward.

Many Republicans are against TAA on principle, citing concerns both over the additional spending it requires in a tough economic climate, along with their disagreement with the concept of singling out workers adversely affected by foreign competition from those affected by domestic competition. As Republicans hold a majority in the House, Obama wants assurances that the worker aid programme will indeed pass in that chamber.

Washington-based trade lawyer Scott Lincicome, speaking to Bridges, noted that “[Speaker of the House John] Boehner has promised a vote, and a clean bill, but he has not promised passage, and that makes things tricky.” While House Ways and Means Chairman Dave Camp, a Republican, has come out in support of TAA, not many other Republicans have publicly expressed support of the programme.

The trade deals, which the US International Trade Commission estimates would bring between US$12 to 13 billion in export revenue, were originally signed in 2007.

During the August recess, the ongoing tensions between Obama and the Republican Party over the trade pacts played out widely in the media, with both sides blaming the other for the continued delay in passing the three free trade bills. Obama recently stated that “the only thing preventing us from passing these bills is the refusal by some in Congress to put country ahead of party.”

Senate Minority Leader Mitch McConnell, a Republican, yesterday published an op-ed in the Washington Post responding to White House suggestions that Republicans were causing the trade deal holdup. “These delays have put America at a major economic disadvantage, costing jobs and opportunities,” he said, highlighting the job issue that has dominated headlines in recent weeks. Obama is also set to announce a new jobs plan to a joint session of Congress tomorrow, 8 September.

“As the President has been holding out over the demands of labour union leaders, other countries are benefiting from free-trade deals of their own,” McConnell added, referring to the FTAs that Korea has with the EU and that Colombia has with Canada, both of which entered into force over the last two months.

Complicated legislative process suggested for ensuring passage of TAA, FTAs

A possible compromise on the worker aid-FTA standoff had been alluded to shortly before the August recess, with details on the compromise emerging within recent weeks (see Bridges Weekly, 28 July 2011).

House Majority Leader Eric Cantor, a Republican, announced last Friday that the House would consider the renewal of the US Generalized System of Preferences (GSP) - a programme that provides preferential duty-free access for up to 4800 products from 129 designated beneficiary countries and territories - today, 7 September. At the time of this writing, no changes had been announced to that schedule.

The likely legislative process for the FTAs and TAA involves a complicated series of votes in both houses of Congress. The current plan has been outlined as follows: if approved by the House this evening, the GSP would then be sent to the Senate, where senators will, in theory, add TAA to the bill and put a combined GSP-TAA package to a vote.

Doing so would allow TAA to be voted on by the Senate first, instead of the House; if TAA were introduced alone, the initial vote would have to be in the House, which is the rule for all revenue-related legislation. The combined package would return to the House for a vote, where - given the widespread support for the GSP - the bill would have a better chance of passage. The package would then go back to the Senate once more for a unanimous consent vote - a process known in Washington as “ping-ponging.” Once this is complete, the three FTAs would then go to a vote in both chambers.

While starting such a process indicates that there might be sufficient votes for all these bills to pass, Lincicome cautioned that there are “lots of balls in the air, and the idea that this is a slam dunk, done deal is a bit premature.” He added that, should TAA fail, the decision will come down to “whether the President values FTAs, or TAA, more.”

Controversy over Chinese currency could hold back FTAs, some fear

Last month, US government data was released that showed that the US trade gap with China grew almost 12 percent during the first half of this year, according to Reuters. However, China’s currency, the renminbi, did experience a sharp appreciation in early August, prompting speculation that Beijing might be taking a new approach to its currency. This change does not seem to have quelled US critics that blame China’s strict control of its currency for the growing trade gap.

As a result, some Democrats - both in the House and in the Senate - are calling for a renewed push for legislation that would give the Obama administration the authority to impose tariffs on Chinese imports if Beijing does not raise the renminbi further against the dollar.

Senator Sherrod Brown, a Democrat from the US state of Ohio, is looking to attach his currency legislation, which is co-sponsored by Republican Olympia Snowe of Maine, to the streamlined version of the TAA bill that House Ways and Means and Senate Finance Committee Chairs agreed upon with the White House earlier this summer.

In a statement on 4 August, Brown insisted that passing a TAA extension was only one step in addressing the need for job creation, and that a move on the currency issue could “prevent job loss by ensuring a level playing field for American manufacturers facing a flood of cheap Chinese imports.”

Similar statements have also come from Democrats in the House: former House Speaker and current Minority Leader Nancy Pelosi recently told the United Steelworkers - a major industry lobbying group - that it was time for Congress to act on the Chinese currency issue. “If you want to bring those trade agreements to the floor of Congress you better be prepared first to let us bring our bill on China’s manipulation of its currency, which is unfair of America’s workers,” she affirmed.

Lincicome noted that, should Brown indeed offer the amendment, there is a “real concern” that such an amendment could hit the required 60 votes to be attached to the TAA bill (or combined GSP-TAA package, if that particular process goes forward). Should Brown push this legislation forward, “the likelihood of [the combined GSP-TAA bill with currency legislation attached] passing both the House and the Senate are very low.”

While acknowledging that the growing US-China trade gap is a major motivator behind moves to pass currency-related legislation, he added that “the real key here is that the actual economics of all this is a secondary issue. The issue is politically powerful. It resonates widely with voters and is poll-tested.”

A similar attempt last year to pass a bill deeming China to be a “currency manipulator” passed easily in the House with bipartisan support, but failed to make much headway in the Senate. (See Bridges Weekly, 7 October 2010).

ICTSD reporting; “Camp Says Canada-Colombia Free Trade Puts U.S. at Disadvantage,” BLOOMBERG, 15 August 2011; “U.S. House to Consider Trade Preferences Renewal on Sept. 7,” BLOOMBERG, 2 September 2011; “Renminbi’s rise fuels talk of China policy shift,” FINANCIAL TIMES, 11 August 2011; “China currency bill could delay passage of free trade deals,” THE HILL, 20 August 2011; “Distrust between White House, GOP leaves free trade bills in limbo,” THE HILL, 27 August 2011; “First trade bill could hit House floor on Wednesday,” THE HILL, 2 September 2011; “House looks to move trade agenda in first week back,” THE HILL, 1 September 2011; “White House pushes Congress to prioritize passing free trade deals,” THE HILL, 14 August 2011; “Wider trade gap could propel China currency bill,” REUTERS, 11 August 2011.

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