Reposted from Inside US-China Trade

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CPA Wants New Trade Policy Focus On Reciprocity, SOE Exclusions

Scott Otteman  |  Inside US-China Trade  |  March 21, 2012

A coalition of import-sensitive industries, farm groups and unions is crafting a set of trade policy principles that places greater emphasis on achieving reciprocity in U.S. trade negotiations, on extending benefits in preferential trade agreements such as the Trans-Pacific Partnership (TPP) to private companies and not to state-owned enterprises (SOEs), and on more strongly enforcing trade commit­ments.

The Coalition for a Prosperous America (CPA) is developing these “21^st century trading principles” internally and with other trade associations and unveiled elements of their proposal during its annual Washington, DC “fly in” that took place last week, CPA CEO Michael Stumo said in March 19 interview.

He said the final set of principles could be completed in as little as six weeks, since intense consultations are going on now among CPA member groups and outside associations involving manufacturers, unions and agriculture groups.

The principles are meant to influence the Capitol Hill debate over future U.S. trade policy objectives in any Trade Promotion Authority (TPA) legislation that Congress might extend for an eventual vote on TPP. It will also serve as a document that support­ive trade associations and labor allies can take directly to the Office of the U.S. Trade Representative and carry forward into official advisory chan­nels such as the Industry Technical Advisory Committee (ITAC) process, he said.

The principles will be released with the backing of a number of groups but will be open for others to sign on. “CPA is the organizer, but we don’t own it,” Stumo said.

He predicted that the number of supporters will fall short of the hundreds that signed on to the CPA petition favoring passage of the currency bill because the document is going to be much more detailed in substance, touching on a variety of distinct issues and interests.

One impetus driving CPA to revamp U.S. trade policy is the feeling among CPA members that it needs to be more strategically integrated with overall U.S. economic goals, Stumo said.

He contrasted the “more-liberalization-is-good” strategy that he said has typified the negotiating approach of USTR with the “more hard-nosed strategy” used by many U.S. trading partners.

“A U.S. trade goal of simply passing more trade agreements is not smart,” he said. “ A goal of more trade liberaliza­tion alone is not necessarily in the national interest.” There is a need for “deeper thinking now that we have a library of bilaterals with 19 countries and we have an administration that says it wants a 21^st century trade agreement” in the TPP, he said.

The CPA fly-in took place on March 13-15 and led to meetings with “70 to 75” House and Senate offices, he said. In addition to unveiling some initial thoughts about the new trade policy principles, CPA members used the sessions to thank legislators for passage of H.R. 4105, which restored Commerce Department authority to impose countervailing duties on imports from non-market economies (NMEs). They also urged sponsorship of H.R. 639, the Currency Reform for Fair Trade Act (Inside US-China Trade, March 14).

In addition, they urged support for the ENFORCE Act (S. 1133, HR 3057), which tightens safeguards against transshipment and other fraudulent means used to evade antidumping or countervailing duties.

Members’ receptivity to the currency legislation appeared to be enhanced by the fact that the House and Senate had just acted to approve H.R.. 4105, because both bills aim to facilitate U.S. efforts to counter unfairly subsidized imports, according to Stumo. He predicted that more freshman House Republicans may join as sponsors of H.R. 639 after the fly-in because “our manufacturing companies in those districts have been pretty adamant” that their support is needed.

By building additional Republican support for the currency bill and noting its similar intent of battling unfair trade, “we hope to get the message through to [Republican House] Speaker Boehner (R-OH) that the bill is not any more of a danger than H.R. 4105,” which was approved by an overwhelming margin in the House.

A more hard-edged insistence on reciprocity is necessary because past trade agreements, including China’s accession to the World Trade Organization, have yielded comparatively fewer obvious benefits for U.S. businesses and workers than for trading partners.

“Our core concern is we give up real access to our market, which is our national asset, in return for a concession that does not deliver in enough volume to keep a manageable balance of trade,” Stumo said. As examples, he cited Chinese PNTR having “supercharged” the ability of Chinese SOEs to access the U.S. market while access to the Chinese market for U.S. firms remains limited, as well as the undermining of tariff concessions made by China and others by intentional currency undervaluation.

Another way that tariff concessions the U.S. has obtained in free trade agreements have been undermined has been a substitution of a value-added tax (VAT) for border tariffs, he said. That is the case in the North American Free Trade Agreement (NAFTA) with Mexico and Canada, the Central America Free Trade Agreement (CAFTA), and the Korea Free Trade Agreement (KORUS), he said.

Another new principle that will be contained will be that preferential trade deals such as the TPP provide benefits to private firms but not to SOEs. The CPA believes such an approach would be on “firm ground” legally because the World Trade Organization is silent on SOEs, and FTAs are by definition exceptions that go beyond WTO rules to grant addi­tional concessions to signatories without extending them on a most-favored-nation basis.

This does not mean CPA would like USTR to abandon the work the administration has already been doing to discipline SOEs, which he described as largely promoting more “transparency” in SOE operations (see related story). But the administration needs to learn from the experience of China’s accession to the WTO, and apply those lessons to countries like Vietnam in the context of the TPP.

“SOEs are inherently subsidized as part of their DNA, and they are often part of state policy,” said Stumo. “They have been supercharged by past trade deals, like China PNTR, which helped them rather than benefiting private compa­nies.”

For instance, he said, Vietnamese textile trading firms, which are largely state-controlled, should not be able to take advantage of any additional tariff concessions provided to TPP members that lower U.S. duties below MFN rates.

To improve the enforcement in trade agreements, the CPA principles will call for expedited procedures in “clear cases where the other country did not do what it said it was going to do” in the trade pact. This could be viewed as similar to how a private firm is able to seek a preliminary injunction if its business partner clearly breaches a contract in a way that threatens the firm. Such a procedure would make it possible for a nation to get immediate relief in a specific case where “damage is difficult to repair” or “damage would be irreparable,” but not in all cases.

Another principle the CPA is “leaning toward” including is that future trade agreements, similar to private business contracts, should be considered “temporary and renewable” rather than permanent, Stumo said. This would reflect CPA members’ view that “permanent trade agreements are an aberration in business, so maybe there should be an opportunity for sunsetting and renewal.” The objection to this view, he acknowledged, is that that lack of permanence could lead to business uncertainty.

The executive committee of CPA’s board of directors is comprised by: Revere Copper Products Chairman Brian O’Shaughnessy, AFL-CIO Industrial Union Council Executive Director Bob Baugh, Ohio Environmental Council Director of Agricultural Programs Joe Logan and Organization for Competitive Markets Executive Director Fred Stokes.