Labor and the American Trade Agenda A Colloquium of the Global Business Dialogue, Remarks

October 1, 2009
National Press Club
Remarks by John Murphy
Vice President, International Affairs, U.S. Chamber of Commerce

It's a pleasure to participate in this panel on "Labor and the American Trade
Agenda." I will endeavor to answer five questions today:

• First, what should the American trade agenda be?
• Second, where does labor stand on that agenda?
• Third, on what basis does labor object to trade agreements?
• Fourth, do the unions fairly represent their members' interests on trade?
• And fifth, what is the cost if the new administration hews to labor's
  position on trade?

1) What Should the Trade Agenda Be?

To provide context, it's important to first ask: What should the U.S. trade agenda be?

Senior administration officials acknowledge that boosting exports will play a critical role in America's economic recovery. The rationale is clear. The American consumer's credit cards are maxed out. The same is for the federal government.

So where can we find the customers we need to get our economy back on its feet? Ninety-five percent of the world's consumers lie outside the United States, and some major foreign markets, especially in Asia, continue to grow briskly.

Standing in the way, however, is a complex array of foreign barriers to American exports. Those barriers are alive and well—and they pose a major competitive challenge to U.S. industry and agriculture and the millions of workers here in the United States who depend on exports.

The way to get rid of those foreign barriers is by negotiating agreements for their elimination on a reciprocal basis. This can be done bilaterally, as in the free trade agreements with Colombia, Panama, and South Korea. Or it can be done multilaterally, as in the Doha Round, the global trade agreement currently being negotiated by the United States and 152 other countries. And to create a level playing field in investment we have bilateral investment treaties, or BITs.

Fundamentally, these agreements are about making trade fair. The truth is the trade playing field isn't always level. Our market is largely open to imports from around the world, but other countries continue to slap tariffs on U.S. exports that are often 10 or 20 times higher than U.S. tariffs.

And tariffs are just the tip of the iceberg—a symbol I will use as a stand-in for a wide variety of barriers that shut U.S. goods and services out of foreign markets. This includes use and misuse of laws and regulations covering intellectual property, competition policy, performance requirements relating to investment, and of course subsidies to assist so-called national champions and place U.S. business at a competitive disadvantage in global markets.

How unfair is the trade playing field? In July, the World Economic Forum issued its annual Global Enabling Trade report, which ranks countries according to their competitiveness in the trade arena. One of the report's several rankings gauges how high the tariffs are that a country's exporters face.

Leading the pack as the country whose exporters face the lowest tariffs globally is Chile, with its massive network of free trade agreements with more than 50 countries around the globe.

While the report found the United States did well in a number of areas, we ranked a pathetic 114th out of 121 economies in terms of "tariffs faced" by our exports overseas. In other words, American exporters face higher tariffs abroad than nearly all our competitors.

This dire situation calls for focused action to dismantle these barriers holding back our exports, and consequently, our economic recovery.

Sadly, though, the last time Congress voted to lower the tariffs that American exporters face was in 2007, almost two years ago, when Congress passed a trade agreement with Peru. By contrast, the House has voted six times to lower U.S. tariffs on imports since then.

In sum, rather than knocking down foreign barriers to U.S. goods and services, the United States is providing largely free access to our market without even asking for reciprocity. This imbalanced approach mirrors labor's opposition to reciprocal, market-opening agreements and the fact that it has not opposed unilateral tariff preferences.

2) Where Does Labor Stand?

Labor's position, in other words, is to allow foreign workers free access to our markets …but oppose helping American workers by lowering tariffs on a reciprocal basis. Most U.S. labor unions have opposed nearly every trade agreement that has come down the pike since NAFTA—every one, whether negotiated by Democrats or Republicans.

For instance, in 2004, most U.S. labor unions opposed the U.S. free trade agreement with Australia. The AFL-CIO deployed its usual argument that the FTA represented a "race to the bottom." It made no difference that Australia has strong labor laws, had ratified six of the eight ILO "core conventions"— now seven of eight—or that Australia's minimum wage is nearly twice that of the United States.

Many have sought to compromise with labor. On May 10, 2007, Democratic and Republican leaders in Congress and U.S. Trade Representative Susan Schwab reached a bipartisan agreement to address labor's concerns about how labor rights and select other issues are addressed in trade agreements.

Speaker Pelosi called the May 10th accord a "historic occasion" and "a bipartisan breakthrough for fair trade where we expand opportunities for American businesses, workers and farmers." Chairmen Rangel and Levin, the U.S. Chamber of Commerce and many others praised this bipartisan accord, which led immediately to changes in four pending trade agreements. The agreement with Peru was approved later that year by overwhelming bipartisan majorities in both the House and the Senate.

But just weeks later, AFL-CIO President John Sweeney issued a statement declaring the organization would oppose the "flawed trade agreements with South Korea and Colombia." The speed with which the AFL-CIO pocketed these concessions—and then proceeded to move the goal posts—was enough to induce whiplash.

Repeatedly, political leaders in both parties who want to open foreign markets for U.S. workers have reached out to labor to seek a compromise to move agreements forward…each time, labor pockets the concessions…then opposes the deals anyway.

It continues this year. In May, Thea Lee testified in opposition to the Panama FTA—which includes the very changes the AFL-CIO sought and won in the May 10th agreement.

Not only did she oppose it due to questions relating to Panamanian labor law, and some new concerns about tax policy, she said the AFL-CIO would oppose the agreement until the Administration and Congress "address concerns that have been raised with respect to the investment, procurement, and services provisions in the Panama FTA." In other words, the AFL-CIO was calling for a host of new, deep changes to the agreement—changes to the trade agreement "template," she said.

The Panamanians were stunned. One official with the outgoing government said: "This isn't just moving the goal posts. This is moving the entire stadium."

Labor's recent endorsement of the so-called TRADE Act of Congressman Mike Michaud is also telling. The act would generate additional reporting requirements relating to international trade agreements on top of those that already exist. It would call into question America's existing trade agreements with countries around the globe, even though those agreements provide guaranteed access to markets that purchase more than 40% of U.S. exports.

It lays out sweeping objectives for future trade agreements, but never contemplates giving President Obama the authority Congress has granted every president since FDR to actually negotiate such agreements. It might as well be called the "STOP TRADE" Act.

Several questions arise: Do we want to open foreign markets to U.S. workers? Do we have confidence in the ability of American workers to compete abroad? Are we prepared to act rather than see American workers put at a disadvantage by the spreading network of FTAs being negotiated by our competitors?

Labor's answer can be summarized, in practice, in three words: no, no, and no.

3) On What Basis Does Labor Object to FTAs and BITs?

What exactly are labor's arguments against FTAs and bilateral investment treaties, known as BITs? In testimony before the House Ways and Means Committee last May, Thea Lee described U.S. free trade agreements in this way:

"Negotiated and reciprocal tariff reductions are paired with enhanced security of investment and upward harmonization of domestic laws to prevent overly 'intrusive' regulation of foreign investment. This combination facilitates and accelerates the offshoring of American jobs."

This is the heart of the unions' criticism of trade agreements, and in some ways, of bilateral investment treaties. To boil it down, the idea seems to be that FTAs and BITs encourage U.S. multinationals to move production to low-wage countries and then sell their goods back into the U.S. market duty-free.

Does this argument hold water? It does not.

In fact, 74% of U.S. multinationals' capital expenditures are in the United States, and three-quarters of the remainder is in developed countries that have wages and labor standards similar to those in the United States.

And when U.S. firms do invest abroad? Commerce Department statistics show that 93% of the production of foreign affiliates of U.S. multinational companies is sold outside the United States. Less than 7% of their production is exported to the United States. By contrast, imports represent 18% of American GDP today.

If U.S. firms are investing abroad to sell into the U.S. market, they are certainly doing a poor job of it.

In truth, the principal reason U.S. firms invest abroad is because it is so often the only way to do business in foreign markets, for instance, in the case of services such as insurance, or to manufacture goods that can be shipped only at great expense, such as potato chips.

Have our FTAs led to more offshoring? In labor's analysis, wouldn't we see more imports from and fewer exports to our FTA partners and a worsening in our trade balance with them?

Again, the data are clear that America's FTAs have been a great boon to domestic production. They have significantly boosted exports of U.S.-made goods and services to our FTA partners.

In fact, the United States is now running trade surpluses with nine of the ten countries with which we have entered into free trade agreements between 2004 and 2008. Just five or so years ago, we had deficits with six of the ten. Looking at all 17 of America's FTA partners as a group, the United States has a trade surplus with them in manufactured goods, services, and agricultural products.

The only area where we run a sizeable deficit with these countries is in our large oil and gas imports from Canada and Mexico, which arguably has much more to do with geology than with trade policy.

The same holds for BITs. Frank Vargo at the National Association of Manufacturers recently issued an excellent analysis of trade between the United States and the 40 countries with which it has BITs.

He writes: "The data show U.S. trade has benefitted. There has been no 'race to the bottom.' That is a fantasy. U.S. manufactured goods trade with the 40 BIT countries was in surplus by nearly $8 billon last year. Moreover, that surplus has increased as manufactured goods exports to the BIT countries have grown faster than imports."

"The data contradict the basic allegation of opponents to the BIT program—their view that the BIT program has resulted in off-shoring U.S. production and costing jobs. Proponents of this position have not offered any data or analysis to buttress their view, and the data do not support their contention."

In sum, the facts do not support labor's contention that abandoning the playing field and giving up on FTAs or BITs will benefit American businesses or workers.

4) Do the Unions Fairly Represent their Members' Interests?

So, if the unions' arguments against FTAs and BITs don't square with the facts, are they at least representing fairly the seven-and-a-half percent of private sector workers who are their members? Let's look at a few unions.

The SEIU has opposed every trade agreement you can name. Their two million members are divided about evenly between health care and public sector workers. As far as we can tell, none of these jobs are endangered by trade. Nurses, bus drivers, and government workers don't face competition from "imports" in any way, shape, or form.

Because trade means lower prices and more choices for American families, these SEIU members all benefit from trade to the tune of about $9,000 per year, according to a widely cited study from the Peterson Institute for International Economics. So how can it possibly make sense for the SEIU to rail against trade when it brings nothing but benefits to its members?

Or look at the International Longshore and Warehouse Union, which dominates West Coast ports. These longshoremen's jobs are 100% dependent on trade. They are also the highest-paid blue-collar workers in America, with average full-time wages for fully registered workers topping $136,000! And yet they've opposed every trade deal you can think of!

Finally, the United Steelworkers represents about 700,000 workers. The union was very involved earlier this year in the push for "Buy American" mandates in the economic stimulus package.

Now, the U.S. Chamber has long advocated a "Buy American, Sell American" strategy. Because many U.S.-made goods and services are the best in the world, we don't just want Americans to buy them—we want to sell them to the 95% of the world's consumers who live outside the United States, too.

While "Buy American" mandates may sound attractive, they generate red tape that delays "shovel ready" projects and risks triggering retaliation by our trading partners. What we're seeing now is that "Buy American" rules aren't creating American jobs—they're destroying them.

Duferco Farrell Corporation until recently employed 600 United Steel Workers at its plant near Pittsburgh. Duferco manufactures coils at its Pennsylvania plant using imported steel slabs that generally aren't sold commercially in the United States. Thanks in part to "Buy American" rules, Duferco had to furlough 80 percent of its workforce.

Now the USW lobbied hard for "Buy American" rules—but those very rules have now cost the jobs of the union's own members.

These unions claim to speak for working Americans. But again and again, we see the unions fighting trade when jobs depend on it…fighting trade when doing so will actually destroy jobs.

5) What is the Cost of Heeding Labor?

If the administration takes labor's advice on trade, what will the results be?

The U.S. Chamber recently released a study which found that half a million American jobs are at risk if the administration adopts labor's positions on trade.

The study found the U.S. could suffer a net loss of more than 380,000 jobs and $40 billion in lost export sales if it fails to implement its pending trade agreements with Colombia and Korea while the European Union and Canada move ahead with their own agreements with the two countries.

If we delay, American workers and farmers will be put at a competitive disadvantage in Colombia and Korea. For example, Canadian wheat farmers will be able to sell their crop to Colombians at a huge discount, and European manufacturers will easily undercut their American competitors in the Korean market.

The study also found that while "Buy American" rules in the Recovery Act will create a limited number of U.S. jobs, the gains will quickly evaporate if other countries implement "buy national" policies in their own stimulus programs.

If foreign governments lock U.S. companies out of just one percent of this total spending, the net U.S. job loss could surpass 170,000. And what if this retaliation escalates? What if American firms lose, say, five percent of those foreign contracts? Or ten percent? You do the math.

Finally, the study found that the U.S. failure to implement NAFTA's crossborder trucking provisions has resulted in $2.2 billion in higher costs for U.S. families and companies, $2.6 billion in lost U.S. exports, and more than 25,000 lost American jobs.

To provide some context, President Obama recently placed steep tariffs on Chinese tires after a complaint by the USW that Chinese imports had caused the loss of 5,200 U.S. jobs over the past five years. Our study shows that 100 times as many jobs could be lost if the United States fails to move forward on trade.

Conclusion

In conclusion, at this time of hardship we a trade policy that will help shape our economic future.

According to statistics from the Department of Labor, less than 3% of layoffs of 50 or more people can be blamed on trade. But organized labor's exaggerated fear of foreign competition—and failure to see the opportunities trade creates—has led their views on trade into a rejectionist dead end.

No one disputes the fact that some workers and communities have been hurt by economic change. The answer to a worker losing his job at a typewriter factory isn't to force the factory to keep making typewriters. It's to make sure that workers can move from a 20th century job to a 21st century job without turning their lives upside down.

The Chamber worked hard to see Congress approve legislation early this year to expand Trade Adjustment Assistance. But there is much more to do. It's a national disgrace that a third of our students don't graduate from high school and that our job training strategies are so ineffective—this, at a time when education and training count for everything. Smart public and private sector investment in effective job training is essential. So is fundamental school
reform.

American business is seriously committed to working with the president, this Congress, and our country's public and private educational institutions on these urgent challenges. The United States remains poised for success. Our nation is blessed with a diverse and talented workforce, immense resources, cutting edge innovations, and countless other advantages.

But our advantages alone are not enough.

There is a warning that has been spoken repeatedly this year by people across the breadth of the Washington trade community: The Obama administration will be stuck playing defense against protectionist initiatives until it devises a forward-looking trade agenda of its own.

Several months ago, we were told that President Obama would shortly make a major speech and outline his vision for "a new framework for trade." We're still waiting. But our trade competitors are not.

More than 100 bilateral and regional trade negotiations are currently under way among our trading partners—without us. On trade, if we stand still, we fall behind.

Half a century ago, a prominent American leader wrote—and I quote—"Millions of American workers are dependent for their livelihood on the sale overseas of the goods they produce. …We must keep in our minds the necessity to find even more markets for American-made goods overseas." He went on to say that a Buy American campaign would "run contrary, not only to the policy of the AFL-CIO, but also against the best interests of American workers."

So wrote George Meany, who stood at the head of the American labor movement from 1952 to 1979. During his tenure and in the years since, every American president has followed this advice and moved the U.S. economy forward, even as the leaders of America's labor unions have moved in other directions.

Former President Bill Clinton showed that it is possible to be a politically successful Democratic president and be pro-trade. It took courage, and it paid off for the country, the American people, and the economy.

The same can be for President Obama—but not if he listens to labor's wrongheaded prescriptions on trade.

Thank you.

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