March 2001: The Yankee Trader

By Greg Rushford
Published in the Rushford Report

This one is for the record.

In January 1997, a month after President Bill Clinton nominated Charlene Barshefsky to be his U.S. Trade Representative, my headline was: “Why Barshefsky Will Fail.” It happened. Barshefsky and Clinton — and you can attribute the lion’s share of the blame to Clinton — never got their economics or their politics straight. During Clinton’s eight years in office, America’s free-trade coalition that dates more than 50 years to Cordell Hull and Franklin Roosevelt was shattered. (Full disclosure: My record as a prognosticator is diminished by the fact that in 1993 I went around predicting that Mickey Kantor, Clinton’s first USTR, would become a formidable free trader).

Now, Robert Zoellick, who was confirmed by the Senate on February 6 as George W. Bush’s trade representative, is positioned to succeed. The man has a solid grasp of the economics and the politics required to put the free-trade coalition back together. This business has already begun, as Bush’s deft and principled handling of the embarrassing U.S. refusal to honor a key part of the Nafta agreement with Mexico indicated last month.

If international trade politics were a kaleidoscope, January 30, 2001 — when the Senate Finance Committee held Zoellick’s confirmation hearing — would mark the day that the pattern shifted. You could see it in the very first exchange between the committee’s top Democrat, Max Baucus (Mt.) and Zoellick. Lecturing the nominee in the stern tones, Baucus tried to lay down the law, Old-Democrat style: Remember the “sensitive” special interests, Mr. Zoellick. Take care of steel, Mr. Zoellick. Remember that you are America’s trade cop, Mr. Zoellick, and step up your “monitoring and compliance” enforcement activities to make sure that cheating foreigners honor their promises. And you had better pay attention to the Democratic agenda on labor and the environment, Mr. Zoellick. “[I] want to state that if legitimate labor and environmental concerns are not incorporated into fast track legislation, I will oppose that legislation, and Ill work hard for its defeat,” Baucus warned.

If the witness had been a Clintonite, that would have been the end of it, with the witness reiterating Clinton’s policy that America needs “free but fair” trade. By the time she left office, Barshefsky had long given up even asking Congress for the essential fast-track negotiating authority that any USTR must have to succeed. Truth is, with the exception of the China PNTR issue and a couple of others like Vietnam, the Clinton trade agenda collapsed back in 1994. That’s when then-USTR Mickey Kantor — fearful of the AFL-CIO, the environmentalists, and the protectionist wing of the Democratic Party — lost the nerve to ask Congress for fast-track negotiating authority (which should have been automatically tacked onto the vote that year to approve the Uruguay Round of negotiations that created the WTO).

For eight years, the Clintonites explained trade to the American people in dishonest, mercantilist terms. Exports were good for jobs, but imports were “problematic,” as William Daley put it. U.S. trade policy under Clinton — like so much of the rest of his presidency — was built on lies. The accumulated lies were like the old Chinese water torture, and were what wrecked the old bipartisan free-trade coalition. You can’t build a trade consensus on a dishonest intellectual premise (Business Roundtable and other corporate advocates of “free and fair” trade, are you listening?).

A few minutes after Baucus was finished, Zoellick’s opening statement began to clear away the lies. “First, expanded trade — imports as well as exports — improves the well-being of Americans,” he declared. “Moreover, restrictions on trade have victims: farmers, school teachers, factory and office workers, small businesspeople, and many others who have to pay more for clothing or food or homes or equipment because of visible and invisible taxes on trade.” He promised to enforce U.S. trade laws, but on the obvious legal and political grounds; there was no Clintonesque salute to the false economic premises that underpin, say, antidumping laws.

No Clintonite would have dared to risk offending so many protectionist lobbies in just two sentences. No Clintonite would even have hinted that Americans pay more for their clothes because of quotas and tariffs, for their homes because of the quotas associated with the lumber accord with Canada, and for their equipment because of the high antidumping tariffs to help the domestic steel lobby. Zoellick showed that, during his previous high-level experience in the White House and Departments of State and Treasury, he learned what trade is all about.

Zoellick also signaled that he understands the politics as well. He was introduced to the panel by his own congressman, Rep. Jim Moran (D-Va.). Moran is a founder and co-chairman of the New Democrat Coalition. Moran and New Democrats like Moran and Sen. John Breaux (D-La.), a Finance Committee member, generally support trade. The votes of New Democrats added to the traditional free-trade Republicans hold the balance of power in Congress. This will be especially true if the Democrats regain control of the House and/or Senate, two very realistic senarios. Congress chafed over the lack of consultation from the executive branch during the Clinton years; now, fences are being mended.

(There is already one tangible accomplishment to report: George W. Bush also sent an important signal last month that he will be more principled than his predecessor. A Nafta dispute-resolution panel determined that the Clinton administration had refused to honor its 1994 pledge to open U.S. borders to Mexican trucks. Nearly seven years ago, Mickey Kantor took a dive for the protectionist Teamsters union, on the flimsy excuse that U.S. authorities could not ensure that Mexican trucks met safety standards. This was one of those lies that ripped at U.S. global credibility. When the Nafta panel issued its (predictable) report last month, a USTR official told reporters, “The President has made clear that he believes that Nafta trucking provisions should be implemented and we intend to do that.” No Clintonite trade official would have even hinted that the U.S. would honor its word to open the border.)

Surprisingly, not one senator dared to challenge Zoellick. The confirmation hearing was a love-in, and Zoellick’s confirmation by the full Senate was a unanimous 98-0 vote. Even Baucus — referring to the long-stalled Free Trade of the Americas negotiations that the administration plans to get moving again — seemed more bark than bite. Baucus acknowledged to Zoellick that “we’re going to, I think, need fast track to progress in any significant way.”

“I think the senators simply knew that Zoellick knows far more than they do, and didn’t want to risk looking foolish by taking him on directly,” one senior congressional aide remarked.

Certainly, Sen. Jay Rockefeller (D-W.Va.), the Senate’s most ferocious advocate of steel protectionism (with the possible exception of Robert Byrd), didn’t try to play fast-and-loose with the facts with Zoellick.

Usually, Rockefeller intimidates nominees.

When Commerce Secretary Don Evans testified at his confirmation hearing before the Commerce Committee on January 4, Rockefeller brought up his favorite subject of “unfair” foreign steel competition. The lawmaker treated Evans to a little lecture about the virtues of Section 201 of U.S. trade law (domestic steelmakers very much want to use 201 to slap on quotas to roll back all imports).

Section 201, Rockefeller said, “involves countries only which are dumping steel illegally.” This dumping is “against the law,” the senator declared. He added that the Clinton administration had “ignored it.”

Truth is, Section 201 has nothing whatsoever to do with dumping or any notion of “unfair” foreign competition. Clinton’s Commerce Department enforced antidumping laws with a vengeance.

Evans apparently didn’t know that either, responding to Rockefeller that he was “disturbed when I hear that our laws are not being enforced.” Evans added: “Competition is okay. But it is not okay if it is not a level playing field.” You could tell that neither man really knew what he was talking about.

At his confirmation hearing, Zoellick explained to Rockefeller — without condescending, the man is not Larry Summers or Al Gore — how 201 works. If a U.S. industry is in trouble, and is really serious about coming up with a plan to restructure itself to regain competitiveness, 201 temporary import quotas can make sense, he said.

But Zoellick pointed out that it would only make things worse if the industry uses the breathing time afforded by 201 quotas as an excuse to delay: “So, that’s why I think it has to be a serious plan with the industry, with the government, to try to restructure, regain its competitiveness, and the meantime offers some of the protections of 201.”

Zoellick promised Rockefeller that he would look at 201 “quite seriously.” He reiterated, though, that “if an industry commits to restructure — and the danger with 201 if it’s just used for protectionist purposes — but if there’s a serious restructuring issue, if there’s a capacity issue, if there’s a series of injuries that have to be dealt with, I have no objection and believe in certain cases it’s a better course of action to look at 201.”

Zoellick said he had been talking with Treasury Secretary Paul O’Neill about how to approach this. Think of the votes in the Ohio Valley for George W. in 2004 if the administration can work out an honest deal on steel!

Rockefeller and the steel lobby — the biggest whiners in Washington, save the textile lobby — now are the ones on the defense. They have lived off the antidumping laws, but still are dying. Now, will the steel guys finally get serious? Will they summon the courage to kick their corporate welfare addiction, and go cold turkey by coming up with a realistic 201 restructuring plan? Probably not. But again, think of the political incentives for the Bush administration. If Zoellick and O’Neill can work out a realistic 201 plan — and I stress, realistic, not just some protectionist dodge — there surely would be some votes from a grateful congressional steel caucus to give George W. fast-track authority.

Just because the man is positioned to succeed doesn’t mean it will automatically happen. Some of the inherited issues — like Canadian lumber quotas that are set to expire this month, European agricultural protectionism — may be intractable.
At least with Bob Zoellick, there is adult supervision at the Office of the U.S. Trade Representative.

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