Defeated Again: Understanding The American Congress Votes on Trade

When the U.S. Senate first rejected the bills on Trade Promotion Authority (TPA), I wrote that it may have marked the day the Americans quit leading on trade.  Although the Senate subsequently managed to squeak through the necessary authorizations, the votes from the House of Representatives today suggests I was right.  Getting the United States to show leadership on trade is somewhere between a tough and an impossible task.

To recap where we are: although the United States has been negotiating multiple trade agreements for years, the U.S. Trade Representative (USTR or basically the trade minister) does not formally have trade authority as delegated from Congress.  Under what used to be called fast track and is now known as Trade Promotion Authority (TPA), Congress lets the White House lead on trade.  Congress sets up the parameters for negotiations and expedited procedures for final approvals. 

USTR went ahead with talks in the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Promotion (TTIP) “as if” the provisions of TPA were in effect.  The White House had opted not to try for renewal sooner (the last version expired in 2007) because they were not convinced that Congress would view the request favorably in the absence of information about what sorts of agreements were under negotiation.  Therefore, the executive branch decided to negotiate first and seek permission at a later date, when it would be more clear to the legislative branch what sorts of benefits and costs might be on offer.

With the TPP waiting for TPA to close the agreement, it was no longer possible to pretend that authorization was in place.  The other TPP member countries have refused to discuss the most sensitive aspects of the negotiation in the absence of clear authority from Congress to pass the final deal without amendment.

Hence the push to get TPA, starting with the Senate.  The original bill was defeated, only to be resurrected days later. 

The Senate votes set up the challenge for the House now.  If the House version of TPA does not exactly match the Senate’s bill, members from both sides would have to sit down and reconcile the inconsistencies.  The final, combined, bill would have to be voted on again by both bodies.

Given the difficulties in getting TPA, no one wants a situation where members of Congress are forced to vote twice.  Hence, the House version had to match the Senate version exactly.

Which leads us, depressingly, to today’s House votes.  The Senate bill had done two things—it renewed authorization of Trade Adjustment Assistance (TAA) and granted TPA.  (An earlier post discussed TAA in more detail.)

The House was reluctant to vote on a similar combined bill.  Thus, they split the bill into two halves—first a vote on TAA and then a vote on TPA. 

The TAA bill went down to defeat.  Even Democratic members of the House that are in favor of the idea of assistance for displaced workers voted against TAA renewal.  This bill, many argued, was insufficient for one reason or another.  Republicans that are not fans of TAA at all had to step up and try to push it over the finish line.  But it was not enough as 86 Republican and 40 Democrat yes votes lost to 303 no votes.

Once TAA was defeated, it also spelled the end to TPA.  This is because the House and Senate versions of the bill have to match.  The Senate authorized both TAA and TPA.  Therefore, the House must also have matching legislation in place. 

In a grim attempt to snatch victory from the jaws of defeat, House members then proceeded to vote—narrowly—in favor of TPA (219-212).  This looked, to people not familiar with the intricacies of Congress, like a success.

But it is not.  Hence, for the second time in weeks, Congress refused to show leadership on trade. 

What comes next is unclear.  It is possible that the House will figure out a solution to what is again being called a “procedural snafu.”  Maybe sufficient members on both sides of the aisle will reconsider their votes on TAA.  Perhaps the Senate will revote on TPA without TAA or with a different version of TAA that might be acceptable to the House. 

Even if this can be fixed, it means that the TPP may not close as planned.  Chief negotiators were expecting to meet on June 22.  This—at best—now looks optimistic.  The deadlines have always been perilously short. 

Once the immediate crisis is resolved one way or another, it is certainly worth thinking hard about why Congress has twice voted against trade.  (And against the President in spite of a full-court press the likes of which Washington has rarely seen in recent memory.) 

I am on my way to Washington DC and will write another blog post once I’ve had the chance to discuss issues with trade and business experts from the ground.  Perhaps only inside-the-Beltway naval gazers can make sense of what has been happening.  Because much of Asia (at least) has been watching in amazement as American legislators reject what most in this region see as common sense.  Cutting off your nose to spite your face does not seem a sensible policy.

***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Battle #2: Getting Trade Promotion Authority (TPA) Through the House

In the ongoing saga of American efforts to show leadership on trade, the battle has moved to the House of Representatives.  The House now needs to give its approval for Trade Promotion Authority (TPA). 

As previous posts have noted, TPA is necessary to conclude any major trade agreement.  TPA delegates authority to the White House to negotiate trade deals on behalf of Congress and subject to ongoing consultations.  At the end, Congress will either pass or reject a trade agreement negotiated under its terms without amendments and with no procedural maneuvering to stop or delay the vote like filibusters or allowing the bill to die in committees. 

TPA is needed most urgently for the Trans-Pacific Partnership (TPP) that is stuck on hold waiting for the Americans to sort out their domestic issues.  It will also be used for ongoing trade talks with the Europeans and with different groups in global trade under the general auspices of the World Trade Organization (WTO). 

TPA narrowly passed the Senate (62-37) on May 22.  [Note that the Senate needed 60 votes in favor to avoid a filibuster that could have blocked consideration of the bill at all.]  The Senate is considered to be the “easier” body for trade agreements, because each Senator represents an entire state with generally more diversified interests. 

Dealing with the House of Representatives

The House is more problematic.  Instead of two members per state like the Senate, representation in the House is based on population.  This means the House is much larger (435 members) and most officials represent narrower slices of the overall electorate.  While seven House members represent entire states (Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont and Wyoming), California is split into 53 different districts.  Population of districts varies quite a bit—from Montana with nearly a million voters to Rhode Island’s 1st district with about half as many.

In general, the House tends to be more partisan on both sides with more Republicans that lean further right and more Democrats that lean further left than the Senate.  An electoral system that often pushes Senate candidates towards the center does not do the same in narrower House districts. 

In the Senate, TPA largely passed with Republican support and a small number of Democrats.  The House, by contrast, has a set of Republican members that have already said they will not support TPA (either because they dislike TPA or because they do not want to hand any victory to this president).  The number of House Democrats that have come out in support of TPA is quite small. 

The next week will involve furious lobbying by both sides with some extremely unlikely bedfellows developing.

The bill also faces some stiff procedural complications.  If the House does not vote on the same bill that was approved by the Senate, the final versions of both bills have to go to a conference committee.  Afterwards, members of both the Senate and the House will need to vote on the final, combined bill one more time.  Given the fraught nature of trade deals, no one is particularly keen to vote twice on a trade bill at this time.

Contentious Issues

Many of the same issues are being raised in the House that nearly derailed TPA in the Senate, including issues over currency and concerns over a possible rise in drug prices post-TPP.  The last concern seems particularly strange coming from the United States.  After the TPP is implemented, it is very likely that the United States will have to make no changes at all (or quite modest increases) in the length of protection provided to pharmaceutical products. 

In spite of strenuous negotiations, the Americans are unlikely to succeed in getting the other 11 member states to reach the farthest timelines under discussion.  Hence, the differences inside the United States around patent length and the timeline needed for generic medicines to appear in the market is likely to be modest.  The impact on domestic drug pricing is likely to be minimal and could, potentially, be positive as manufacturers have access to new markets overseas.  [Concerns over new, longer protections could be more pressing for other members who currently have shorter timelines for intellectual property protections.]

Just like the battle in the Senate, in the House opponents are bringing in additional issues and trying to tie them to the passage of TPA legislation.  Two key issues are extension of Trade Adjustment Assistance (TAA) for displaced workers and the renewal of the Ex-Im Bank.

Trade-Adjustment Assistance (TAA)

In any trade agreement, there are likely to be winners and losers.  TAA is intended to help retrain workers that experience job losses directly tied to trade.  Unfortunately, it is difficult to sort out whether a worker lost a job due to a trade deal or to globalization more broadly or to shifting technology or to some completely unrelated factor.  Only the first type of job loss is eligible for worker training assistance under TAA funding.

In the new economy characterized by global value chains and shifting patterns of production and consumption worldwide, individuals are likely to hold many different jobs over the course of a career.  These jobs may or may not even be in the same sector.  As a result, to stay competitive, workers are likely to need a lifetime of training and retraining options.  Training can provide people with new skills necessary for success in the future. 

This type of training is likely to be necessary with or without any new trade agreements.  After all, even if the United States never signs another trade deal, workers will still be faced with competition from overseas and still need upgraded skills to work with different types of technology.  Jobs of the future are likely to be quite different from many today and no person—white or blue collar, well educated or not—is likely to succeed without a lifetime of increasing investment in new skills and knowledge.

Thus a battle over the appropriate levels of support for working training is one worth having, although it need not be tied to a trade agreement.   Connecting the two unnecessarily burdens the latter while not giving sufficient scope to the former.

Ex-Im Bank Renewal

The other area of interest in both the House and the Senate is also tangentially connected to a trade agreement.  The fight has shifted to discussions of conditions needed for renewal of the Export-Import Bank.  The Bank has to be reauthorized every five years and the deadline is approaching at the end of June.

The purpose of the Bank is to provide money to firms that want to export more by either giving trade financing (especially to smaller firms) or providing a government loan guarantee (key for larger firms).   It also provides insurance for overseas firms that want to buy American products.  Commercial banks are often more expensive or loath to take on what they view as excessive risks (particularly in emerging or frontier markets). 

The U.S. taxpayer is on the hook only when the loan recipient defaults.  The record of Ex-Im since the 1930s shows that its loans contain very low risk and, in fact, the program overall puts money back into the U.S. government coffers. 

A focus on shutting down the Export-Import Bank looks extremely strange viewed from Asia.  The total U.S. funding for Ex-Im amounts to roughly $20 billion or 0.6 percent of the total U.S. budget.  What is so odd is that the scale of this assistance is, frankly, close to microscopic.  Governments in this region grasp the need for exports.  Without fetishizing exports at the expense of imports, it is clear that exports create jobs at home.  Exports have contributed strongly to the economic miracles in Asia that have lead to rapidly rising incomes and living standards across the region.

To continue to foster this kind of growth, Asian governments promote exports considerably more than America.  In fact, it could be fairly easily argued that American companies are at a strong competitive disadvantage given the lack of trade financing and loan guarantees available relative to their competitors.  Even the relatively small scale program in Ex-Im is meaningful for participating firms.

Just to take one example, Singapore has three different agencies tasked with building up and encouraging economic growth and development by getting smaller firms to scale up, helping firms find a niche in overseas markets and encouraging inward investment by some of the largest and most competitive global firms.  The government gives grants, loans and tax credits to companies large and small, foreign and domestic. 

Canada, Japan and China all have substantially larger entities that do many of the same things.  Each dwarfs the size of the American programs.  In fact, every country in the OECD (a collection of rich countries) has at least one export credit agency. 

Like the fight over TAA, it might be worthwhile to engage in a sustained discussion about supporting industry—the ideal level of support, the effectiveness of programs, the best methods for doing so, etc.  But the TPA ought not be torpedoed over Ex-Im Bank reauthorization.

***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***