Obama’s Trade Stance Coming into Focus

Bridges Weekly Trade News Digest • Volume 12 • Number 37 • 6th November 2008

Barack Obama, who will become the 44th president of the United States in 75 days, will have the opportunity to make drastic changes to the country’s role in international trade at a time of global financial turmoil and deep frustration at the slow progress of multilateral trade talks at the WTO.

Indeed, exit polls conducted outside polling places on Election Day suggested that the US economy was the chief concern among voters, with 62 percent of those surveyed citing it as the most important issue facing the US. This figure was far ahead of the 10 percent of voters who said Iraq was their most important concern.

On international trade issues, the president-elect has pledged to take a stronger stance against China, take another look at NAFTA and to reject bilateral and regional trade deals that “put the interests of multinational corporations ahead of the interests of American workers.”

“When it comes to trade, there is no one-size-fits-all approach,” Obama said in a speech at a trade and manufacturing forum in April. “If countries are committed to reciprocity, if they are abiding by basic rules of the road, then we should welcome trade. Many poor countries need access to our markets and pose no threats to our workers,” he said.

Although the president-elect has yet to take any policy decisions or make any appointments, his approach to trade can be drawn out from speeches he made on the campaign trail and in interviews that his chief economic advisers have given.

The attitude that the Obama administration will adopt in the ongoing Doha Round of Trade talks at the WTO will no doubt be the subject of much speculation. The multilateral negotiations have stalled repeatedly in their seven-year history — the most recent major setback came in July. Some analysts say that the talks may effectively go into hibernation over the next one or two years as new administrations find their feet not only in the US, but also in India and the EU.

Ever optimistic that a deal to liberalise trade in agriculture and industrial goods can still be concluded in the coming months, Brazilian Foreign Minister Celso Amorim has urged WTO Members to finalise an agreement before Obama’s inauguration on 20 January.

“It will facilitate things for President-elect Obama if we are able to finalise the modalities by the end of this year. It would relieve him of very difficult choices at the start of his government,” Amorim said during a visit to Geneva on Wednesday, Reuters reported.

Amorim dismissed the notion that having a Democrat in the White House would hinder progress toward a global trade deal.

“I don’t think that holds any more,” he said, referring to the widely held belief that Democrats are more protectionist than Republicans. “This has more to do with manufacturing than with the agricultural problems we are facing, and the Democrats are also more multilateralist,” he said.

Indeed, Obama has promised that his administration will actively engage in the multilateral talks.

“I believe that we can work within the framework of the WTO to ensure our international standards for workers, poor nations, public health and environment are all improved,” Obama said during the Democratic primaries earlier this year.

But the president-elect’s views on agriculture subsidies may not sit well with many of the US’ trading partners.

Obama, who in May of this year voted for the US farm bill — a broad piece of legislation that, among other things, largely preserves previous levels of agriculture subsidies — has repeatedly pledged to protect the interests of US farmers in international trade. A supporter of US ethanol production, Obama has vowed to invest US$ 150 billion over the next decade in biofuels and to maintain the US$ 0.45 blenders’ tax credit and the US$ 0.54 ethanol tariff. He has also publicly backed crop revenue insurance programmes as well as a permanent mechanism to encourage farmers to use crop insurance.

Further complicating the potential for progress at the multilateral level, Obama has said that he would only support giving the executive branch ‘fast track authority’ to submit trade deals to Congress for a simple up-or-down vote on the condition that the legislative branch is given more power under the authority. Such a shift could complicate negotiations at WTO headquarters in Geneva, as Obama’s trade officials might need to carefully consider Congress’ views before making commitments to trading partners.

More details of Obama’s trade views will emerge over the coming weeks as the president-elect appoints a new US Trade Representative and selects the members of his cabinet. Such appointments will all be subject to the approval of the Senate, but as Obama’s Democratic Party is in the majority in the 100-member legislative body, his picks for the cabinet and other high-level positions will most likely be endorsed.

A stronger stance on China

At the bilateral level, one theme that has clearly emerged is Obama’s commitment to taking a strong stance on trade relations with China. The Democrat outlined his views on the matter in a letter to the National Council of Textile Organisations last month:

“The massive current account surpluses accumulated by China are directly related to its manipulation of its currency’s value,” Obama wrote. “The result is a large imbalance that is not good for the United States, not good for the global economy, and likely to create problems in China itself. China must change its policies, including its foreign exchange policies, so that it relies less on exports and more on domestic demand for growth.”

“I will use all diplomatic means at my disposal to induce China to make these changes,” he wrote.

Obama has also levelled criticism at the Asian giant’s industrial subsidies, and has called for stronger measures to stop the piracy of US intellectual property in the country.

Walking a fine line on NAFTA

Obama’s views on the North American Free Trade Agreement, or NAFTA, are somewhat more nuanced. The deal - whose passage is considered one of the major achievements of Bill Clinton, the last Democrat to occupy the White House - has not sat well with many in the Democratic base. Indeed, some union leaders have claimed that the agreement has shut down factories in the Midwest, while conservationists have argued that the deal to liberalise trade on the continent has spurred an environmental ‘race to the bottom’.

Some would say that Obama’s stance on NAFTA shifted somewhat over the course of the campaign. Amid his battle for the Democratic nomination against Senator Hillary Clinton last February, Obama called the regional trade deal “devastating” and “a big mistake” and vowed to either renegotiate NAFTA’s environmental and labour standards or pull the US out of the agreement altogether.

But in a meeting with Canadian leaders the following month, senior Obama adviser Austan Goolsbee reportedly indicated that Obama’s protectionist-sounding messaging “should be viewed as more about political positioning than a clear articulation of policy plans,” according to a memo from the meeting that was leaked to the press.

“On NAFTA, Goolsbee suggested that Obama is less about fundamentally changing the agreement and more in favour of strengthening/clarifying language on labour mobility and environment and trying to establish these as more ‘core’ principles of the agreement,” the memo said.

Uncertainty over bilateral trade deals

Just how well other trade deals will fare in an Obama administration remains to be seen. The president-elect has backed the US’ bilateral deal with Peru, to which Congressional Democrats successfully added labour and environmental provisions last year, but he has opposed pacts with Colombia and Korea, which he says would be bad for American workers. These latter two pacts, as well as one with Panama, are currently awaiting Congressional approval.

Obama’s opposition to the agreement with Colombia stems from the violence against unionists in that country. “When organising workers puts an organiser’s life at risk, as it does in Colombia, it makes a mockery of our labour protections,” he said in a speech to unionists in April.

But despite Obama’s stated opposition to the deal, at least in its current form, some in Washington think that the president-elect might push the Senate to approve an amended version of the agreement once he is in office, especially if he is able to get significant union input on amendments to the deal.

Prospects for the passage of a US-Korea deal, which the two countries finalised last year, could also be brighter than some might have thought during the primary season. Obama has long opposed the pact, which he has called “badly flawed,” because it does not offer enough protections for US industry. “In particular, the terms of the agreement fall well short of assuring effective, enforceable market access for American exports of manufactured goods and many agricultural products,” Obama wrote in a letter to President Bush, a supporter of the agreement, in May.

But just last month, Obama’s foreign policy adviser, Frank Jannuzi, said that Obama would submit a US-Korea trade deal to Congress for approval if he were to win the election. But that deal would first have to satisfy several pre-conditions, Jannuzi said, including increased access of US autos to the Korean market, stronger protections for US workers who lose their jobs because of the deal, and resolution of a long-running dispute over beef imports.

ICTSD reporting; “Obama: NAFTA not so bad after all,” FORTUNE, 18 June 2008; “Bush presses for Colombia trade deal Obama opposes,” Reuters, 16 October 2008; “Colombia deal has better shot under Obama, say trade lobbyists, union reps,” THE HILL, 16 September 2008; “WTO needs new labor, environment rules-Clinton, Obama,” REUTERS, 29 February 2008; “Obama urges Bush back off South Korea trade deal,” REUTERS, 23 May 2008; “Obama to Submit Korean Free Trade Pact for Ratification in 2009,” YONHAP, 27 October 2008; “Obama watching Bush closely in WTO talks: aide,” REUTERS, 10 July 2008; “Brazil urges Doha deal before Obama start,” REUTERS, 5 November 2008.

ictsd.net