May, 2001: The Yankee Trader

By Greg Rushford
Published in The Rushford Report

The leader of the most powerful nation in the hemisphere went to the Summit of the Americas conference in Quebec City last month with his hands tied. Everyone knew that the U.S. Congress — mired in protectionist gridlock — has not granted President George W. Bush the vital so-called “fast-track” negotiating authority that he needs to launch serious negotiations to create a Free Trade Area of the Americas. Without fast track (or “trade promotion authority,” in the new parlance), every leader in the Americas knows that any trade deal struck with Bush and his trade negotiator, Robert Zoellick, can be — is certain to be — rewritten by a protectionist-minded U.S. Congress. In Quebec, Bush and Zoellick sat at the table, but they had no real cards to play.

Indeed, the deck has been stacked against America since 1994, when then-U.S. Trade Representative Mickey Kantor dealt America out of the business of conducting serious international trade negotiations. At the time, it was unthinkable that Congress would refuse to give a president fast-track authority. But having just suffered through the ordeal of the 1993 NAFTA fight, Kantor blinked at the threat of another battle with protectionist Democrats and their backers in the AFL-CIO. When Congress ratified the Uruguay Round of negotiations that created the World Trade Organization, Kantor didn’t ask that fast track be included in the package. Since then, there has been a steady decline of U.S. prestige in global trade circles.

If America’s diminished leadership in international trade is going to be restored, Congress must begin by giving Bush fast track. Otherwise, forget U.S. ability to cut deals in the FTAA. More important, forget the launch of a new round of WTO negotiations when trade ministers convene in Qatar this November. And where the U.S. Senate is concerned, if fast track is going to happen, it will have to begin first in the committee with trade jurisdiction, the Senate Finance Committee. Uh oh.

The leaders of Washington’s international-trade bar, naturally, are too prudent to tell senators what they think of them to their faces. But from interviews I have conducted in recent weeks with trade officials, diplomats, lawyers, and business lobbyists, the general consensus is that the Senate Finance Committee is weak. The leadership on both sides of the aisle is untested. And most of the rank-and-file members have come to tilt protectionist.

Washingtonians with institutional memories dating to the 1970s and 1980s recall that the Finance Committee has not had strong leadership since the days of Russell Long (D-La.) and Bob Packwood (R-Or.). Chairmen Long and Packwood were honest in the sense that they kept their word once they gave it. They were mean enough that rank-and-file freelancers would think twice about trying to roll them. Above all, there was an implicit understanding that senators would act with a certain restraint, and not let their obligations to constituents seeking trade protectionism cut into the political bones of America’s free-trade coalition.

But in recent years, the committee has been gradually taken over by members who don’t remember or care much about the old free-trade coalition first put together by Cordell Hull and Franklin Roosevelt. Today, most of the members don’t even seem to understand all that much about international trade.

Of the ten Democrats on Finance, there isn’t a genuine free trader in the lot. The top Democrat, Max Baucus from Montana, is a self-proclaimed “fair” trader. Baucus is mainly interested in protecting U.S. lumber, steel, and wheat from foreign competition. The Montanan is also vowing to kill any fast-track authority that doesn’t satisfy the protectionists in the U.S. labor and environmental lobbies.

Baucus is currently busy drumming up support from lawmakers to press the Bush administration to refuse to negotiate meaningful reforms of our antidumping laws in any FTAA or WTO negotiations. This is the sure kiss of death for any such multilateral talks, as foreigners deeply resent how the United States (unfairly) administers these laws.

But Baucus doesn’t get this. He has also defended U.S. antidumping laws, even when Japan and other foreigners have proven in WTO dispute-resolution panels that the United States has applied these laws in a WTO-illegal fashion.

“We must aggressively counter the efforts of some of our trading partners at the WTO to undermine and overturn U.S. trade laws,“ Baucus said in a recent speech. “They must learn that attacking U.S. trade law is not cost-free and that there will be a price to pay.”

Baucus has also called for more “active use” of restrictive quotas and high tariffs on imports pursuant to Section 201 of U.S. trade law, a top priority of the steel lobby. Baucus, who is up for reelection next year, has of late been so eager to court domestic steel interests that he has complained that Japanese steel markets are closed to U.S. exporters. Fact is, American steel makers don’t even make enough steel to supply U.S. markets;, and they have expressed little interest in exporting to Japan.

Baucus could be the next Finance Committee chairman if the Republicans lose only one seat in the Senate.

Next in line to be chairman after Baucus is Jay Rockefeller, the West Virginia Democrat. Rockefeller’s main interest in international trade is to protect his steel constituents. The man gets away with astonishing demagoguery. Think of Rep. James Traficant (D-Oh.) with patrician manners. Like the rabble-rousing Traficant, Rockefeller tells giant whoppers.

At an April 4 committee hearing, Rockefeller was in his usual form. He actually said this to Alan Greenspan about the U.S. steel industry: “Well, what the industry has been doing now and for the last 10 years is without a single nickel of government money has been modernizing itself so it now produces at a lower cost per ton, per man hour per ton than any other country in the world.”
Greenspan kept a straight face, and replied that if that were true, the U.S. steel industry would have no trouble competing.

What Rockefeller said was not true.

Not a single nickel of tax dollars to subsidize U.S. steelmakers? I guess Rockefeller forgot the pension bailouts, the tax loopholes, the cheap loans, the Buy America laws, not to mention the $1 billion Emergency Steel Loan Guarantee Program that was sneaked into law in 1999.

The most competitive, efficient steel industry in the world? Only the day after Rockefeller spouted off, respected steel industry analyst Donald Barnett told the Association of Steel Distributors that U.S. steel makers need to cut out “ideally $75 a ton” of fixed costs in order to become competitive, American Metal Market reported. Barnett added that there now is 15 million tons of excess steel making capacity in the United States. Don’t get me started on all the reasons why the U.S. steel industry is unfit and unwilling to compete.

Try telling that to Rockefeller and the rest of the Democrats on Finance.

What about the Republicans?

They are a little better, but not much.

Of the ten Republican senators on the panel, only four are considered generally solid on free trade: Alaska’s Frank Murkowski, Don Nickels of Oklahoma, Jon Kyl of Arizona, and Texan Phil Gramm. Probably Gramm, who holds an economics doctorate, knows trade principles the best. But Gramm doesn’t do much on Finance except talk; his main energies are focused on the banking committee, which he chairs. And to be sure, the free-trade four are outnumbered even in their own party.

Five other Finance Committee Republicans either aren’t very active, or limit their activities to advocacy on behalf of protectionist constituents. Fred Thompson of Tennessee and James Jeffords of Vermont are two names that never seem to come up when trade issues are discussed. The last thing anyone seems to have heard from Jeffords was in the 1980s, when he defined his “free trade“ philosophy in protectionist terms. In Fair Trade Fraud, author James Bovard quoted Jeffords as saying this about the 1986 legislation to limit textile imports: “As a traditional free trader…I favor negotiated international agreements to unilateral legislation to limit imports.” Jeffords seemed not to understand that traditional free traders do not favor restrictive quotas and high tariffs, for textiles or anything else.

Utah’s Orrin Hatch is for free trade, except any time that he is asked to front for some protectionist lobby like Salt Lake City’s uncompetitive Geneva Steel. Hatch has also voted with the textile protectionists on occasion. Trent Lott, the majority leader from Mississippi, is another man whose office door is always open to the steel and textile lobbies. At least Lott doesn’t pretend to be a free trader. Olympia Snowe is basically the potato lady from Maine. Her main ambition on the committee is to keep Canadian potatoes on the north side of the border. Snowe is also the lumber lady, for the same reason.

The tenth and most important Republican is Charles Grassley, the Iowan who has succeeded the ineffectual William Roth as chairman. While Grassley has made some free-trade noises, people around town aren’t sure exactly where he is headed.

Perhaps he is still feeling his way, aware that his room for maneuverability is constrained by the 50-50 partisan split on his panel. By contrast to Roth, Grassley — once he makes up his mind on something — is a bulldog. In the early 1980s the Pentagon underestimated Grassley’s resolve, writing off his criticisms of defense waste as coming from a hog farmer. Well, that Iowa hog farmer played a key role in exposing a major spare-parts scandal that inspired some defense procurement reforms (remember those $500 coffee pots and $280 coffee pots?).

Now, if Grassley figures out that the U.S. antidumping laws — like the Pentagon’s relationship with many defense contractors — are a scam on consumers and taxpayers, the steel lobby is in trouble. Certainly no Iowa senator — aware that the steel guys want to sacrifice the interests of farmers in the FTAA and WTO — should be in love with antidumping.

Early this year, Grassley played an important role in talking President Bush out of the (nutty) idea to downgrade the role of the U.S. Trade Representative, and give it instead to the Commerce Secretary. That was a sign of strength.

But Grassley has also made mistakes. Earlier in the year, Grassley stood by and let Sen. Rick Santorum (R-Pa.) and the steel guys torpedo Thelma Askey’s nomination to the International Trade Commission, simply on grounds that Askey was an honest advocate of free trade. As I reported last month, this was a terrible, intimidating signal to the supposedly independent ITC. The likes of Santorum would not have dared to embarrass Russell Long or Bob Packwood that way.

So, we really don’t know yet if Grassley will be forceful enough to restore the Finance Committee’s tarnished luster. Fast track is where this must begin.
Until that happens, embarrassments like sending the president of the United States to Quebec City without the wherewithal to launch serious negotiations will continue.

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