The Bush Administration and Democrats Reach a Bipartisan Deal on Trade Policy

Introduction

On May 10, 2007, the Bush Administration and Democrats struck a bipartisan deal on U.S. trade policy. Coined the "New Trade Policy Template,"[1] ("Template") the bipartisan deal largely reflects many Democrats' long-standing position on trade, such as strengthening labor and environmental standards. The template will apply not only to future free trade agreements (FTAs) to which the U.S. is a party but also to the currently pending four trade deals with Peru, Panama, Colombia, and South Korea.

Background

The ever-growing U.S. trade deficit has fueled criticism from Capitol Hill aimed at the Bush Administration's trade policy, darkening the prospects of the renewal of trade promotion authority (TPA, formerly known as the fast track authority), which expires on June 30, 2007.[2] In particular, the Democrats' win in the midterm election last year boosted their traditional position on trade policy, which among other things seeks to reinforce labor and environmental standards in trade agreements.[3] Nonetheless, some leaders in the Democratic Party, including Charles Rangel, Chairman of the House Ways and Means Committee, have emphasized close cooperation between Democrats and the Administration on trade issues, including the extension of TPA.[4] The template is the outcome of several months of behind-the-scenes negotiation between Democrats and the Republican Administration in which Charles Rangel represented the House side.[5]

The New Trade Policy Template

The template consists of six agreements addressing trade-related issues in labor, environment, investment, government procurement, intellectual property, and port security.

First, Free Trade Agreements must incorporate the internationally recognized labor standards provided by the International Labor Organization's "Declaration on Fundamental Principles and Rights at Work (1998)." These standards concern basic labor rights such as freedom of association, the right to collective bargaining, the elimination of all forms of forced or compulsory labor, the effective abolition of child labor and a prohibition on the worst forms of child labor, and the elimination of discrimination in respect of employment and occupation.[6] Any failure to comply with these standards is remedied through fines and trade sanctions.[7]

Second, the agreement on the environment requires that parties incorporate a specific list of multilateral environmental agreements, including: the Convention on International Trade in Endangered Species (CITES); the Montreal Protocol on Ozone Depleting Substances; the Convention on Marine Pollution, the Inter-American Tropical Tuna Convention (IATTC); the Ramsar Convention on Wetlands, the International Whaling Convention (IWC); and the Convention on Conservation of Antarctic Marine Living Resources (CCAMLR).[8] Violations of these environmental obligations shall be enforced "on the same basis as the commercial provisions" of FTAs, including through trade sanctions.[9]

Third, the agreement on intellectual property grants developing country FTA partners certain flexibility in protecting patent rights of pharmaceutical producers in an attempt to promote public access to essential medicines.[10] For example, "developing country FTA partners may implement exceptions to normal rules for protecting test data if necessary to protect public health."[11]

Fourth, the agreement on investment rejects so-called "reverse discrimination" against U.S. investors. It highlights that foreign investors should not be granted more investment protection than that accorded to the U.S. investors.[12]

Fifth, the agreement on government procurement clarifies that FTA parties may include certain provisions in their government contracts requiring that suppliers comply with core labor laws, such as those regarding occupational safety and health requirements, in the country where the good is manufactured or the service is provided.[13]

Sixth, the agreement on port security provides an "essential security exception" under which a foreign company's plan to provide services in the U.S. ports can be annulled if that plan raises national security concerns.[14]

Legal Questions

The nature of this bipartisan deal is more political than legal. Most of provisions in the deal are not new, although their emphasis may be. The provisions are either reaffirmations or clarifications of pre-existing U.S. trade policy. For example, even under the current text of the U.S.-Peru FTA, the U.S. may use trade sanctions if Peru violates basic ILO labor principles in a persistent pattern, such violations affect U.S. trade interests, and Peru refuses to pay fines (monetary assessment).[15] However, certain legal aspects of the template are worthy of noting.

First, there is a question of what extent already-concluded agreements should be re-negotiated to accommodate the template. From a technical standpoint, re-negotiation does not seem to be necessary as long as the template mirrors relevant provisions in those FTAs. Even if some new elements were added in the template, the other party may still be able to accept them without re-negotiation, possibly via a softer vehicle, such as a memorandum of understanding.

Second, can an FTA party impose trade sanctions on another party for its failure to comply with fundamental labor and environmental standards' In most cases, those standards are breached primarily by private businesses (employers and factories), not by the government itself. The government is only responsible for its non-enforcement through a persistent pattern, i.e., "through a sustained or recurring course of action or inaction."

Therefore, individual labor and environmental scandals, standing alone, may not be attributable to the government, no matter how grave they may be. Moreover, only those breaches occurring "in a manner affecting trade or investment" can be remedied under the template. These rigorous conditions, which can also be found in the North American Free Trade Agreement (NAFTA) but have never been triggered, seem to function as a legal safety valve in this political deal.

Conclusion

This bipartisan deal on trade policy is a perfect application of the so-called "two-level game" theory of international negotiation. Political input and pressure from domestic constituencies are projected to the international arena and tend to control the government's courses of action.[16] Yet, the impact on the external level of the game is limited in that the deal concerns only FTAs. It still remains to be seen what, if any, implications this arrangement will have for the WTO Doha round talks, and whether the deal opens a window for an extension of the TPA beyond the end of June.

About the author
Sungjoon Cho, an ASIL member, is an Assistant Professor of Law at Chicago-Kent College of Law, Illinois Institute of Technology. During the period of 1994-96, he represented the government of South Korea in negotiations under the World Trade Organization and the Organization for Economic Cooperation and Development. He is the author of Free Markets and Social Regulation: A Reform Agenda of the Global Trading System (Kluwer Law International, 2003), and The Law of the World Trade Organization through the Cases (2006) (with Joseph H. H. Weiler), http://www.jeanmonnetprogram.org/wto/Units/index.html

Footnotes