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.
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***