What Happened in 2002

In August 2002, Congress passed the Trade Act of 2002 (P.L. 107-210) giving the President trade promotion authority (TPA). With TPA, the President can negotiate trade agreements and then present them to Congress for an up-or-down vote without amendment. This assures potential trade partners that the agreements they sign will not be altered on Capitol Hill.

Gaining TPA was a crucial step in the Administration's trade agenda. The Administration notified Congress of its intentions to negotiate free trade agreements with Morocco, Central America, Australia, and the Southern African Customs Union. Additionally, it has notified Congress of its intention to conclude trade negotiations with Chile and Singapore this year. The agreements with Chile and Singapore are likely to be voted on in late spring 2003.

The Administration also made an agricultural proposal to the World Trade Organization (WTO) that it would cut tariffs and domestic support (otherwise known as subsidies). If implemented, this proposal will cut global tariff rates to 25 percent or below, for an average tariff of 15 percent, and cut domestic support to 5 percent of a country's total value of agricultural production. While such decisions moved trade liberalization forward, the Administration also made a series of protectionist moves.

In March 2002, as a result of a strong steel lobby, the President imposed a tariff of up to 30 percent on imported steel. Prior to this decision, 80 percent of all imported steel entering the United States was subject to a tariff. Exemptions were made for all of the countries that have a trade agreement with the United States. Additionally, several other countries received exemptions; Australia, for instance, received an exemption for 85 percent of its exported steel.

The tariff on steel was followed by another protectionist move to subsidize U.S. agricultural producers. In May 2002, President Bush signed the new farm bill (P.L. 107-171), which will cost a total of $180 billion over the next 10 years--$4,400 in taxes and inflated food prices for every American household. Two-thirds of that cost will be distributed to the wealthiest 10 percent of farmers and agribusinesses, most of whom have annual sales of over $250,000. This act will contribute to overproduction. According to estimates from the Organisation for Economic Co-operation and Development, producer support was 21 percent of farm receipts before passage of the new farm bill. Since one of the goals of the current WTO round of negotiations at Doha, Qatar, is to liberalize agriculture, this farm bill further cripples American credibility in the global trade arena.

On a more positive note, in November the Bush Administration made another proposal to the WTO. If implemented, this proposal would eliminate all tariffs on consumer and industrial products in two phases by 2015. In essence, this proposal would turn every store in America into a duty-free shop.

What Must Be Done in 2003

To regain America's leadership position on trade, the Administration and Congress should work together to expand trade opportunities and lower barriers to trade. Specifically, Congress should:

• Ratify the free trade agreements with Singapore and Chile. Agreements with these countries will strengthen U.S. leadership in Asia and Latin America and move liberalization forward.
• Support the Administration's pursuit of new trade agreements. Congress should use the opportunities presented by the congressional oversight group mandated under TPA to express opinions in advance of an actual agreement and to keep abreast of current negotiations.
• Reduce agricultural tariffs and subsidies at home. Before the United States can ask the rest of the world to reduce their barriers to U.S. products, it should boldly lead the way. Such actions are crucial to restore American credibility on trade.
• Continue trade liberalization through the current (Doha) round of trade negotiations. The United States should be willing to cut tariffs and subsidies to advance liberalization in this round.
• Advance the concept of a Global Free Trade Association (GFTA) of countries that are open to trade and investment flows. The GFTA could set the standard by, among other measures, abolishing tariffs on all traded goods and aggressively opening markets to trade in services. Additionally, it would encourage competition; countries that do not meet the membership criteria would be motivated to open their markets in order to join. Using a system of many bilateral trade agreements, this association would be policy-based rather than geographically based. Criteria for membership in the GFTA should include:

--Trade Policy. The country must have an average tariff rate of no more than 9 percent and must maintain minimum non-tariff barriers.

--Investment Policy. The country must have an open investment regime, maintaining a transparent and open foreign investment code, treating foreign investments impartially, and approving foreign investments efficiently.

--Property Rights. The country must have an established rule of law that protects private property and provides an environment in which business transactions take place with a high degree of certainty.

--Regulation. The country's government regulations must not deter entrepreneurs from opening a business and must not overly burden new businesses with regulation.

Sara J. Fitzgerald is a Trade Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.

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