Opinion among trade policy experts in the United States is unanimous that fast track legislation is dead for this year; and indeed, the likelihood is that fast track authority will not be granted again by Congress until the next president comes into office in 2001. This memorandum will present three reasons why the United States finds itself in this situation: political and interest group maneuvering in both parties, but particularly among Democrats and their constituencies; the failure of presidential leadership since 1994; and finally, the existence of honest and unbridgeable differences over the content and future direction of trade policy for the United States—specifically on the question of whether labor and environmental regulations must be included in all future U.S. trade agreements.
Party and Interest Group Shifts
The best means of tracking changes in the pro- and anti-free-trade coalitions can be found in analysis of the decline in support for fast track in Congress—or more specifically in the U. S. House of Representatives, which presents a more accurate barometer of political divisions in the two parties and in the country as a whole. In 1993, there were 257 Democrats, 177 Republicans and 1 Independent in the House of Representatives. In the vote on NAFTA that year, 108 Democrats (42 percent) and 126 (71 percent) of the Republicans voted "aye." In 1994, the Republicans took control of the House, and in the 1996 elections they retained control, though with a reduced majority. In the new 1997 Congress, the composition of the House included 207 Democrats, 227 Republicans and 1 Independent.
If in the 1997 Congress, the percentage of support in each party for fast track had remained the same as it had been for NAFTA, fast track would have passed by a margin of 65 votes. With the same percentage distribution of "aye" and "nay" votes, 253 (85 Democrats and 168 Republicans) would have voted to extend fast track, and 188 (118 Democrats and 70 Republicans) would have voted to deny the President this authority.
Though an actual vote never occurred on fast track in 1997, a poll of House members was conducted by the magazine National Journal. The results of this poll, combined with additional information on members’ intentions from outside sources, indicates that only 43 Democrats (21 percent of all Democrats) and 160–170 Republicans (70–75 percent of all Republicans) or a total of between 203–213 House members would have voted for fast track in 1997. News reports at the time confirm that poll counters estimated by the House would have failed by 6 to 16 votes to achieve the 218 votes needed for passage.
The most significant factor behind the dramatic loss of support for trade liberalization from NAFTA to fast track was the striking decline in support from House Democrats. The percentage of House Democrats backing further free-trade agreements fell by half, from 42 percent to 21 percent. Support from Republicans remained constant at about 70 percent.
There are several reasons for the change in Democratic voting patterns. First, the composition of the House Democratic party changed substantially from 1993 to 1997, with Democrats who opposed NAFTA and fast track more likely to survive Republican onslaughts than those who supported NAFTA and fast track. Thus, 54 percent of the Democrats who were in the House in 1993 but no longer in the House in 1997 voted for NAFTA, while only 30 percent of the Democrats who were House members in both 1993 and 1997 voted for NAFTA. Support for additional free-trade treaties also eroded among Democrats who were in the House in 1993 and 1997. Only 20 percent of Democrats who were members of the House in both 1993 and 1997 would have voted for fast track, a drop of 10 percent compared with the support for NAFTA within this group. In addition, only 23 percent of new Democratic members, that is, Democrats who were members in 1997 but not in 1993, planned to vote for fast track. (For a more detailed empirical analysis of the party voting patterns, see Robert E. Baldwin and Christopher S. Magee, "Is Trade Policy for Sale? Congressional Voting on Recent Trade Bills," National Bureau of Economic Research, Working Paper No. 6376, January 1998.)
What explains this change in Democratic support for trade liberalization? (Note that there was never a majority for trade liberalization, but even the minority got smaller.) First, the losses the Democrats sustained in 1994 tended to be in the South and in northern and western suburbs, or in districts where because of income levels, education, and constituent attitudes toward trade, Democratic representatives had been more receptive to new trade initiatives. Democrats who survived in 1994 and 1996 were more likely to come from core districts in the inner cities with heavy minority makeup and/or from labor-dominated districts. Both labor leaders and many minority—particularly black—leaders opposed more trade agreements. In addition, clearly after the NAFTA agreement, the stance of the AFL–CIO and of key environmental groups substantially hardened—and both Democratic constituencies increased their activity against further trade liberalization.
For their part, Republicans also contributed to the flagging drive for further trade liberalization advances by repeatedly pursuing the byway of unilateral sanctions for a myriad of extraneous political, social, moral and security issues. In the post-Cold War world of the 1990s, when the use of military force seems less palatable, sanctions rapidly have become the weapon of choice. To many political leaders, they seem to be an inexpensive means of venting moral or political outrage. According to figures recently compiled by the U.S. National Association of Manufacturers, from 1993 through 1996, the United States imposed some 61 unilateral economic sanctions against 35 different countries—22 in 1996 alone. Currently 42 percent of the world’s population lives in countries under some U.S. trade sanctions, and these countries account for about 20 percent of world exports markets.
While Democrats have also often supported unilateral sanctions, it is Republicans who are associated with the more aggressive use of such sanctions and with the imposition of the two most egregious trade-disrupting legislative acts: the Helms-Burton Act against Cuba, which sooner or later seems likely to cause a major conflict with the European Union and which will complicate further expansion in the Free Trade Association of the Americas; and the 1996 Iran-Libya Sanctions Act, which also may well provoke a trade war and ultimately undermine the authority of the World Trade Organization.
History may record that President Clinton’s finest achievements came early in his administration with the skillful and determined fight he waged for the ratification of the NAFTA agreement and later for implementation of the results of the Uruguay Round. Unfortunately, since 1994, the president’s achievements in the trade area and his willingness to take on protectionist interests and elements of his own party have been virtually nonexistent.
Certainly it is true that President Clinton came out of the NAFTA fight with a divided party and with two key Democratic constituencies—labor unions and the environmentalists—bitter and in revolt against the administration’s trade policies. It is also fair to argue that at least until his reelection was accomplished, the politically wise course for the president to follow was to lie low on trade.
The real onus of the charge of failed leadership stems from the president’s failure since November 1996 to expend any meaningful resources or political capital to advance trade liberalization. His support for the regional agreements, APEC and the FTAA, has become pro forma and perfunctory; and he has not developed a vision for future U.S. leadership in a new round of multilateral negotiations—the "Millenium Round" that WTO Director Renato Ruggiero and others have called for.
Once again, the central symbol of these leadership failures has been the handling of renewal of fast track authority. Given the continuing divisions in his own party, logic dictated that the president act promptly after his overwhelming reelection in November 1996. And at first it seemed that the administration would respond to this challenge. The President gave some prominence to fast track renewal in the 1997 State of the Union address, and both Speaker of the House Newt Gingrich and Senate Majority Leader Trent Lott voiced support for quick passage of the new authority and for compromise on labor and environmental issues.
But in the end, the administration repeatedly postponed even sending up fast track renewal legislation—first promising such legislation by April, then June, and finally effectively killing the measure by postponing an administration proposal until September 1997. (The administration excuse was that the president needed to devote much of his time to China MFN renewal.)
The same pattern of events has unfolded in 1998. After once again calling for a drive for fast track renewal in his 1998 State of the Union address, the president has backtracked and now argues that until Congress deals with the Asian crisis through the passage of legislation granting more funds to the IMF, the administration will not send up legislation for new fast track authority.
Some old and some new political factors are at work. First, the AFL-CIO has made defeat of fast track legislation a number one priority and is heavily lobbying Democratic representatives. In addition, though the 2000 presidential election is more than two years away, Democratic presidential politics is already a complicating factor. House Minority Democratic Leader Richard Gephardt will almost certainly challenge Vice President Gore for the Democratic presidential nomination—and he has made the issue of fast track and the addition of labor sanctions a central element of his campaign to gain labor union support. In turn, Vice President Gore will remain wary of any stance that will alienate his labor and environmental support, and thus would also prefer that new trade authority be put off until after the next presidential election.
Looking beyond 1998, the prospects for fast track passage are even dimmer. After the midterm elections, both parties will assume a full battle mode for the presidential contest, and both will have reason to postpone action in the trade area: the Republicans will not want to give Clinton the opportunity to forge a place in history with more trade agreements, and the Democrats will not want to risk a corrosive internal debate on trade that could cripple their candidate for the presidency in the year 2000.
It is always fascinating to focus on the intricacies of political maneuvering and presidential politics, but these moves and countermoves should not disguise the fact that, over and above such machinations, far-reaching issues are at stake. Put simply, the United States must decide whether in the future the inclusion of labor and environmental standards and sanctions will become preconditions to further trade liberalization.
The issue was presented candidly by Representative Gephardt in a speech in March 1997. He stated bluntly: "Labor and environmental provisions must be fully enforceable with access to trade sanctions where necessary. We need to recognize that further upward harmonization is necessary in labor and the environment in order to further our interests in these important areas." He further demanded that such provisions be fully integrated into the agreements themselves and not be placed in side agreements as had occurred in NAFTA.
There are two reasons why Republicans (and at least a few Democrats) will likely stand firm against such proposals. The first is that capitulation to the Democrats and labor would overturn the most important principles on which Republicans have defended free trade since the 1950s. Going back to President Eisenhower, the Republicans’ case for trade liberalization has been built on the party’s domestic principles—that is, removing barriers to trade is simply an extension to the international arena of the domestic goals of deregulation, privatization, and downsizing government. Republicans have argued that "free trade is its own reward" and government regulations and bureaucracies should not be reintroduced in the name of labor or environmental upgrading.
A second reason that Republicans are likely to hold the line against new trade-related social or environmental charters is that they have the great preponderance of economic evidence solidly behind them. It is for this reason that in October 1997, 50 leading U.S. international trade economists signed a statement strongly backing fast track but condemning attempts to link trade with social and environmental sanctions.
Economic research has produced a reasonable consensus on the conclusion that wages and working conditions in developing countries are generally in line with productivity and are not artificially depressed, as has been charged. Moreover, there is scant evidence that countries with low labor standards enjoy a better export performance than high-standard countries; indeed, there is some evidence that changes in technology and international competition are leading many developing countries to race upward for product quality rather than downward for price.
Contrary to popular opinion, multinational firms are not locating primarily in low-standard countries, and labor standards and wages in general are not large determinants of location decisions. It is true that over the past several decades a growing wage inequality has characterized the U.S. labor market. But economists attribute most of this disparity in the wages of skilled and unskilled laborers to revolutionary technological changes (there simply are not enough computer nerds and software design geeks) that have occurred in the U.S. economy. President Clinton’s own economic council states that recent research indicates that only 10 to 15 percent of the increase in wage inequality in the 1980s can be traced back to the effects of international trade.
Further, again in contradiction to popular perception, a surge of imports from low-wage countries is also not the culprit behind wage inequality. Over the past 40 years, trade with countries whose average wage is less than half of the U.S. average has increased only slightly, from 2.2 percent to 2.8 percent of U.S. Gross Domestic Product.
The case against top-down environmental trade regulations is equally strong. In general, the evidence demonstrates that, as incomes rise through trade and investment, the level and sophistication of environmental regulations also rise. Moreover, there is little evidence that multinational firms favor countries with low environmental standards. On the contrary, they usually adopt higher environmental standards than local companies.
It is true that, unlike labor issues, which are entirely domestic in content, some environmental problems such as air and water pollution may spill over one or many borders. Here there are legitimate challenges that must be met in integrating trade rules to existing or proposed international conventions such as the Montreal Protocol to reduce chlorofluorocarbons (CFCs) or the Basel Convention on hazardous waste trade. Even in these cases, sanctions would be a last resort, imposed only after achieving a multilateral consensus.
In sum, an objective review of the research completed to date leads to the conclusion that the arguments in favor of new sanctions-based trade rules for labor and the environment fail to meet serious economic tests. This is indeed the judgment of a team of University of Michigan economists who, after an exhaustive and comprehensive review of the economic literature, state that "the weight of the theoretical and empirical evidence does not justify taking an activist position to enforce harmonized environmental and labor standards across different countries" (Robert Stern, Alan Deardorff, and Drusilla Brown, "Issues of Environmental and Labor Standards in the Global Trading System," Research Seminar in International Economics, University of Michigan, Discussion Paper No. 398). Given this judgment, leaders from Asian and South American countries have good reason to fear that calls for new labor and environmental standards are stalking horses for protectionists’ interests in the developed world.
Finally, whatever the outcome of the political maneuvering, it is high time that the U. S. Congress and the American public debated these questions openly and candidly. Because as this paper has pointed out, the outcome of this debate is central to determining the course of U.S.—and ultimately the world’s—international trade and investment policy in the 21st century.