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Capitol Comment

    Capitol Comment 171 - Free Trade: Fast Track to Prosperity

    10/13/1997

    On September 16, President Clinton finally introduced his legislative proposal for renewing fast track authority to negotiate trade agreements. This authority, which expired in 1994, would allow the president to negotiate trade pacts that Congress must approve or disapprove by a simple up or down vote. Therefore, members of Congress — and the special interests who attempt to influence them — could not amend trade agreements during the legislative process.

    On September 16, President Clinton finally introduced his legislative proposal for renewing fast track authority to negotiate trade agreements. This authority, which expired in 1994, would allow the president to negotiate trade pacts that Congress must approve or disapprove by a simple up or down vote. Therefore, members of Congress — and the special interests who attempt to influence them — could not amend trade agreements during the legislative process. Renewal of fast track is crucial because the administration could negotiate agreements that lower trade barriers in a manner benefiting the United States as a whole, not just certain groups, regions, or businesses.

    Trade leads to prosperity. Currently, exports make up one-fourth of U.S. economic growth, and workers in export-related industries earn wages 13 to 16 percent higher than the national average.1 At the same time, Americans must remember that imports have benefits as well. In addition to improving our standard of living through a greater choice of goods and services and increased purchasing power, imports create high-skilled jobs in domestic sectors such as transportation, retail sales, distribution, and finance. Because of this, the U.S. needs to continue pursuing policies that promote trade. Renewing fast track authority — thereby facilitating the trade negotiation process — is one way to ensure that the level of trade enjoyed by our economy continues to rise.

    What's on the fast track? If fast track authority is renewed, the president is expected to use it to complete negotiations that for the most part have already been scheduled in prior international trade agreements. Already on the drawing board is the Free Trade Area of the Americas (FTAA), a plan that would bring the rest of the Western Hemisphere into the North American Free Trade Agreement (NAFTA), which is currently limited to the United States, Canada, and Mexico. Implementation of this plan would begin with the addition of Chile to NAFTA followed by other nations from the Western Hemisphere by 2005. In addition, the president will be negotiating three major international "sectoral" agreements on investment, agriculture, and services through the year 2000. Without fast track, the United States' ability to effectively pursue these negotiations would be crippled.

    First stop: the growing markets to our south. Trade agreements with Latin America should be of particular concern to policymakers. Latin America is a vast market of 375 million people, and by 2010, its demand for U.S. exports is expected to exceed U.S. exports to Japan and Europe combined.2 In 1995 (the most recent year for which data is available), Central and South America accounted for one-fifth of total U.S. exports, and between 1993 and 1995, exports of U.S. goods and services to Central and South America rose an average of 17 percent a year.3 With annual growth rates between five percent and ten percent for many of the region's economies, increased demand for foreign goods — not only from the United States but from any nation — is inevitable.

    Many of Latin America's developing nations already understand the value of establishing trade partnerships — and are entertaining trade delegations from our competitors. Led by Brazil, six Latin American countries have already signed the Southern Common Market trade agreement, often referred to as Mercosur. Chile, with an annual import growth rate of 26%, recently joined its South American neighbors in Mercosur, and has even formed pacts with Mexico and Canada4. Chile is also currently considering strategic trade partnerships with the European Union, Japan, and China. Each of these agreements reduces the incentive for South American countries to negotiate with the United States.

    Lack of U.S. activity. What has the United States done to position itself in this burgeoning market? Not much, other than playing internal politics with the issue. Every president from Ford to Bush has been granted fast track negotiating authority with relatively little controversy. But, for the first time since its inception over two decades ago, fast track authority expired in 1994. Even worse, due to pre-election pressure from unions and environmental groups, President Clinton's request for renewal of fast track authority was not made until now. As a result, opportunities to strike new deals and open new markets for American goods and services have been forestalled.

    With one-third of our economy dependent upon exports and 95 percent of the world's consumers residing outside of our borders, the U.S. simply cannot afford to further delay participation in trade negotiations. Doing so leaves the door wide open for America's economic competitors to go in and get business that could have gone to American companies and their workers for generations to come. The administration has now recognized the economic costs incurred by the delay and has finally proposed legislation. It is now up to Congress to enact a clean, workable fast track bill this fall.

    1Testimony of Ambassador Charlene Barshefsky, United States Trade Representative, before the Senate Finance Committee, June 3, 1997.

    2Testimony of Ambassador Charlene Barshefsky, acting United States Trade Representative, before the Senate Finance Committee, January 29, 1997.

    3U.S. Census Bureau, Statistical Abstract of the United States (1996), Table 1305, p. 801.

    4U.S. Census Bureau, International Trade Statistics website: http://www.census.gov/ftp/pub/foreign-trade/www