Free Trade to Gain in Republican Congress, UPS Says

Free Trade to Gain, Restrictions Ease in New Congress
UPS’s international shipments surged 17 percent in the first nine months of this year. Photographer: Bob Riha, Jr/UPS/Getty Images

Scott Davis, chief executive officer of United Parcel Services Inc., says a U.S. campaign season rife with blasts at China and sending jobs abroad masks what the new Congress means for global commerce: a chance to pass long-stalled agreements to remove trade restrictions.

Before the election, “no one is going to go out there and support free trade because it doesn’t play well at home,” Davis, a member of President Barack Obama’s export council, said in an interview Oct. 22. “There will be more attention to get these agreements going” next year.

Republicans retook the House of Representatives yesterday with a net gain of at least 60 seats, their biggest increase since 1938. Next year may provide the best chance to pass free-trade agreements with South Korea, Colombia and Panama since they were approved by President George W. Bush in 2007. Obama has shied away from pushing the deals in Congress as drafted amid high unemployment and opposition from some fellow Democrats and labor unions.

“This is one area where Republicans and Democrats can work together,” said William Lane, government relations director for Caterpillar Inc., the world’s biggest construction-equipment maker, which favors free trade.

Republicans also scored a net gain of at least six seats in the Senate, though Democrats retained control of that chamber.

Caterpillar, Boeing

For companies such as UPS, Caterpillar, Boeing Co. and Citigroup Inc., getting the agreements passed would broaden access to markets abroad, with the South Korean deal alone boosting U.S. exports by $10.9 billion a year, according to the U.S. International Trade Commission.

The Obama administration says the U.S. needs changes to the Korea agreement concerning beef and autos before submitting it to Congress, and both countries have said they hope to agree on revisions before a summit in Seoul next week. “If we can reach a satisfactory agreement on the key issues for American workers, we will have a deal,” according to a White House statement yesterday.

Republican leaders such as Kentucky Senator Mitch McConnell and Michigan Representative Dave Camp, who is in line to become chairman of the House Ways and Means Committee, say they want to help Obama get the pending trade deals approved.

“Under a Republican House leadership, if the president is serious about moving forward on trade, he will have a serious partner on Capitol Hill,” Texas Republican Kevin Brady, the likely chairman of the trade subcommittee of the House Ways and Means Committee, said at a meeting in Washington Oct. 25. “We believe the three agreements are critical.”

Replacing Levin

Camp, who has called for passing the Korea deal this year and the other two agreements within six months, is in line to replace Democratic Representative Sander Levin of Michigan, who has pushed the administration to attack trade barriers in Korea before bringing the deal up for a vote.

While Camp joined with Levin in voting for a measure aimed at pressuring China to raise the value of its currency, he told the National Foreign Trade Council on September 29 that the China bill was “not my trade agenda.” Brady would replace Democratic Representative John Tanner of Tennessee, who has also supported the accords.

In addition to the free-trade agreements, Congress may face a vote next year on Russia’s bid to join the World Trade Organization, which also will be important to the U.S. economy, said Edward Gresser, president of the Democratic Leadership Council in Washington.

China, Vietnam

Over the past decade, U.S. exports to countries such as China and Vietnam that joined the WTO rose by 120 percent, more than double the increase in exports to countries that approved free-trade agreements with the U.S. during that period, according to an analysis of Commerce Department data by Gresser.

The South Korean accord, the most important of the three pending pacts in volume of goods affected, may draw especially strong bipartisan support. With almost $68 billion in two-way trade, the deal would be the U.S.’s largest free-trade pact since the North American Free Trade Agreement in 1994, making it critical to helping Obama meet his goal of doubling American exports in five years.

“Korea has broader implications,” Laura Lane, the head of international government affairs at New York-based Citigroup, said in an interview. “A number of countries are looking at what happens with that deal in the hopes that the U.S. will redouble efforts” in World Trade Organization talks for a global accord on trade and for a deal in Asia among the U.S., Vietnam, Australia and other nations, she said.

Tea Party

The upshot is that even “coming out of an election being fought on populist grounds, the next Congress could move trade legislation,” said Phil English, a former Republican House member from Pennsylvania who is a lobbyist at Arent Fox LLP in Washington.

While some Tea Party members have criticized free-trade agreements, saying they create more overseas competition, the Republican majority and its leaders see approving the accords as a priority, English said.

Jobs are at stake as well. For every 22 packages UPS ships in or out of the U.S. every day, it adds an American worker, Dan Brutto, the president of Atlanta-based UPS International, said in an interview. The U.S. trade deal with South Korea will cut the wait time in customs from more than a day now to less than four hours, and guarantee UPS the ability to set up operations there, he said.

UPS Globally

“Our business relies heavily on trade,” Brutto said. UPS’s international shipments surged 17 percent in the first nine months of this year, compared with 1.7 percent growth for domestic shipping.

Atlanta-based UPS, the world’s biggest package-delivery company, also generates bigger profit margins from its international business, which accounted for 28 percent of adjusted operating profit in the third quarter on 15 percent of daily shipping volume, according to the company’s earnings report. Profit margins on the international business have averaged 15.6 percent over the past three years, compared with 12.0 percent for the domestic operations, adjusted for one-time charges.

For Chicago-based Boeing, more than 80 percent of pending orders are for aircraft that will be shipped abroad. Caterpillar exports half of what it makes in the U.S. and gets 70 percent of its revenue overseas.

Pfizer, Merck, Lilly

The world’s largest drugmakers, including Pfizer Inc., Merck & Co., and Eli Lilly & Co., say they are counting on an accord to roughly double their share of the $10 billion South Korea pharmaceutical market, which is now dominated by domestic generics makers. If that happens, it would mean a combined $3 billion more in revenue for Pfizer and the other global firms.

Citigroup, the third-largest U.S. bank, would benefit from the Korean agreement because it would allow regional data-processing hubs outside Korea, making it easier to operate and manage risks. The deal also requires Korea to publish proposed rules before they take effect and allow companies to comment on them.

The benefits of free trade weren’t on display during the election campaign. Candidates criticized trade agreements, China or companies moving jobs overseas in 90 percent of the competitive or open House and Senate races this year, according to an analysis by Public Citizen’s Global Trade Watch, a Washington group critical of free-trade deals.

Only six of the more than 120 Democrats running to retain their seats spoke in favor of trade deals, Global Trade Watch says. Pushing the agreements “flies in the face of where voters are going,” said Todd Tucker, the group’s research director.

Portman’s Campaign

Republican Rob Portman, the winner of a Senate race in Ohio, listed among his accomplishments as U.S. Trade Representative under Bush the times he said he forced China to end trade barriers or filed complaints against them at the World Trade Organization. His campaign website didn’t mention that he kicked off negotiations for the free-trade agreement with South Korea. When describing that deal in a debate, Portman dubbed it a “trade opening” accord, not a free-trade agreement.

Democratic Representative Ron Kind of Wisconsin, who urged Obama to push forward with the Korea deal earlier this year, included in one of his last television advertisements a pledge to increase taxes on companies with overseas operations.

Obama also joined in. At a campaign stop in Philadelphia in September, the president took aim at Republican Senate candidate Pat Toomey, saying Toomey wanted to “make trade deals that send jobs out of Pennsylvania.” Toomey won the Senate seat yesterday.

Paul’s Position

The Tea Party could stymie efforts to get the trade agreements through Congress. While some Tea Party-backed candidates, such as Rand Paul, winner of a Senate race in Kentucky, are outspoken supporters of these deals, 61 percent of Tea Party voters say trade agreements have hurt the U.S., according to a poll by the Wall Street Journal and NBC News in September.

“It depends on how many Tea Party candidates are elected and if they are willing to compromise,” said Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce, the nation’s largest business lobbying group.

One of the few areas where Republicans and the Obama administration are likely to work together in the coming months is on approving at least the Korea free-trade agreement, Josten said. The Chamber supports the deals and says they could provide a much-needed boost to the U.S. economy.

“The first topic that comes up when people talk bipartisanship is trade, because historically it has been a bipartisan issue,” said William Reinsch, president of the National Foreign Trade Council, a Washington group that represents exporters. “But it requires the president to decide he really wants to do this, and the Republicans to want to reciprocate.”


Before it's here, it's on the Bloomberg Terminal. LEARN MORE