WASHINGTON – The future of U.S. trade assistance and the effects of Chinese hemispheric expansion dominated Hill foreign policy hearings here last week.
On Thursday, the Senate Committee on Finance debated the utility of U.S. trade preference programs, two of which are set to expire at the end of this year.
Chairman Max Baucus, D-Mont., opened the hearing with an appeal to the committee to consider the United States’ trade goals at large:
“For us and for our neighbors, we cannot let these programs expire. But for us and for our neighbors, we must make our preference programs the best that they can be. . . . We do not want to help countries who refuse to help themselves. And we do not want to undermine America’s goals in multilateral trade negotiations.”
Trade preference programs comprise a small but growing portion of total U.S. trade. According to a GAO report, also released on Thursday, “Total U.S. preference imports grew from $20 billion in 1992 to $92 billion in 2006, with most of this growth taking place since 2000. The increases from preference program countries reflect legislation passed by Congress in 1996 and 2000 that enhanced preference programs and added new eligible products.”
Total U.S. imports were $2.2 trillion in 2006, according to the U.S. Census Bureau.
But the programs themselves are growing largely obsolete, said Grant Aldonas, former under secretary of commerce for international trade. Although preference programs are valuable to developing economies, they are founded on the wrong economic paradigm, he argued:
Consider, for example, what that means for the competitive need limits and product exclusions of our current Generalized System of Preferences (GSP). It is hard to escape the conclusion that those conditions on our preferences discourage, rather than enhance, the opportunities for trade. The same holds true for the process by which we ask foreign governments to apply to add specific products to the list of goods eligible for duty-free treatment. That condition puts the power over the use the preferences in the hands of the politically powerful who can exercise their economic demands through the political process, rather than enhancing the opportunities for the poor to engage in exchange . .
Instead, Aldonas testified, the United States should focus more on supply lines than tariff reductions. In today’s changing global economy, in which local producers now “export” to multinational companies (which, in turn, trade on a much larger, more global scale), integration is paramount:
Today, the principal barriers to trade are the commercial standards that exporters must satisfy in order to become a supplier integrated into a global supply chain that serves customers all over the world. . . . To do that, our preferences would have to help that entrepreneur and exporter satisfy the product quality and safety standards demanded by U.S. . . . manufacturers.
In Aldonas’ view, that means restructuring the way Congress and the bureaucracy evaluate trade preference programs. A more effective system would “graduate” states more frequently — ensuring development assistance did not result in a dependency — to prepare their economies to compete in the global market, he said.
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Also on Thursday, the House Foreign Affairs’ Subcommittee on the Western Hemisphere discussed the challenge of Chinese expansion in Latin America and the Caribbean.
According to Chairman Elliot Engel, D-N.Y., China’s economic interests in the Western Hemisphere have grown exponentially over the past nine years. “In 1999, total trade between China and the Latin America and Caribbean region stood at $8.2 billion,” he said during his opening statement. “By 2007, it had risen to almost $102 billion — a more than ten-fold increase in less than 10 years. Likewise, Chinese exports to the region have soared by a similar amount.”
Regardless, regional Chinese investment is not a zero-sum game, said Daniel P. Erikson, of Inter-American Dialogue in his opening testimony. Although China has forged closer relationships with Venezuela and Cuba, among other states whose leaders are somewhat hostile to the United States, the U.S. remains the region’s primary stakeholder, he added.
Erikson believes China’s primary political and economic interests in the Western Hemisphere have little to do with supplanting U.S. regional hegemony. They are largely the result of globalization, he said: Latin American markets, which are slowly expanding and diversifying, offer immense promise for China’s inexhaustible export streams, he said. These markets, in turn, create unique opportunities for China to assert its “One China” policy — Latin American or Caribbean states lose all-important Chinese investment unless they denounce Taiwan.
“Although Latin American countries involved in this geopolitical chess match have little individual clout, together they make up the most significant group of states caught in the cross-strait tug-of-war, representing 12 of the 23 countries that recognize Taiwan,” Erikson testified.
Changing Western hemisphere geopolitics underscores an important challenge facing American policymakers: Ensuring China acts as a responsible hemispheric stakeholder, said Robert Evan Ellis, an adjunct professor of International Studies at the University of Miami later in the afternoon:
[B]ecause the PRC generally does not condition its aid and commerce on its partners’ adherence to democratic practices and respect for human rights, the option of doing business with the PRC undercuts the ability of the US to apply pressure on these issues. . . . [S]uch differences notwithstanding, the United States and the PRC have a range of shared interests and objectives in Latin America that can serve as the basis for cooperation, to the benefit of the region.
Americans should avoid the more alarmist analyses of Chinese expansion, argued Dr. Francisco E. González, assistant professor of Latin American Studies at Johns Hopkins University. China does not have the capacity to assert much hard power over the hemisphere, and even if it did, its top priority is (and always will be) maintaining a positive relationship with the United States, he asserted.
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The Caucasus: Frozen Conflicts and Closed Borders, (Wednesday; full House Committee on Foreign Affairs)
Genetics and other Human Modification Technologies: Sensible International Regulation or a New Kind of Arms Race (Thursday, House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade)
International Disaster Assistance: Policy options (Thursday, Senate Committee on Foreign Relations)
Open Executive Session to consider the “Iran Sanctions Act of 2008” and pending nominations (Wednesday, Senate Committee on Finance)
Testimony on the origins of aggressive interrogation techniques: Part I of the Committee’s inquiry into the treatment of detainees in U.S. custody (Tuesday, Senate Committee on Armed Services) Investigation into the Shipment of Sensitive Missile Components to Taiwan (Wednesday, Senate Committee on Armed Services)