The Democratic party won a comprehensive victory in the US midterm Congressional elections on 7 November. This much is beyond dispute. What it might mean for Washington's trade policy as Democrats prepare for the 2008 presidential election, however, has left observers searching for answers.

Most analyses in the press suggest that the US legislature's already-shaky support for bilateral and multilateral trade talks will be further weakened by the Democrats' ascent to power in both the House of Representatives and the Senate. In particular, the Republican Bush administration is now believed to be even less likely to get Congress to extend its 'fast-track' negotiating authority past the scheduled expiry date next July. Without this, chances to conclude the struggling Doha Round negotiations in the next year or two would virtually disappear, even if WTO Members manage to revive the talks early in 2007.

Senior Democrats have already vowed to vote against the US' free trade agreement (FTA) with Peru unless new labour protections are added to it. This opposition means that the Bush administration may not try to get the accord approved in the 'lame-duck' session before the new Congress is sworn in next January.

The new Congress will also be charged with working with the White House to map out agricultural subsidy spending from 2007.

Democrats lukewarm to trade?

Divided government is not a new phenomenon in US politics. The party in the White House has not controlled Congress for more than half of the past 50 years. This did not prevent the development of the bulk of the multilateral rules that now govern world trade.

Republicans are currently considered to be more supportive of free trade than the Democrats with their connections to organised labour. However, the Bush administration in March 2002 imposed extra steel tariffs that were widely derided as protectionist, and later deemed illegal by the WTO. A Republican Congress put together the 2002 farm bill that substantially increased subsidy payments. Historically, it has in fact been the Democratic party that has been more supportive of international trade rules.

Nevertheless, some trade analysts have found reason to believe that the newly-elected Congressional Democrats may be different from their Clinton-era predecessors who approved the Uruguay Round accords and the North American Free Trade Agreement (NAFTA) in the early 1990s.

US campaign group Public Citizen contended that public anxiety about trade helped tip the balance in nearly three dozen closely-contested House and Senate races. It hailed the election result as a victory for active opponents of the "US trade status quo of NAFTA, WTO and fast track." Exit polls conducted on election day suggested that concerns about corruption and the war in Iraq were foremost in voters' minds, but that they were also worried about outsourcing and job losses.

Two researchers at the University of St. Gallen in Switzerland estimated that 16 'trade-friendly' House legislators, as well as five senators, were to be replaced by newcomers who are, "at best, described as 'trade-sceptic'." Their conclusions were based on a study of campaign rhetoric and incumbents' voting records on the WTO and the Central American Free Trade Agreement (CAFTA).

TPA: anti-bilaterals need not equal anti-Doha?

According to Simon Evenett and Michael Meier, the authors of the Swiss study, Democratic candidates mentioned trade far more often than Republicans on the campaign trail. Several brought up concerns about job losses, unfair trade, and labour and environmental standards. "All of the new Democratic senators had bad things to say about trade reform," added Evenett and Meier. However, they pointed out that while many Democrats criticised recent bilateral FTAs, especially CAFTA, "very few... made critical references to the WTO or the Doha Round."

Kimberly Elliott, a senior fellow at the Washington-based Peterson Institute for International Economics and the Center for Global Development, drew a similar distinction between the Doha Round and bilateral talks, particularly those with smaller economies such as Peru and Colombia. "My reading of Congressional votes is that multilateral negotiations have never been as controversial as FTAs with low-wage countries with poor labour practices," she argued.

In an interview with Bridges, Elliott pointed out that in recent FTA debates in the US, many of the strictly protectionist arguments -- for minimising imports of sugar and textiles, for example -- came from Republicans. Democrats, by comparison, focused more on environmental and labour standards. She suggested that though Democrats might try to block small bilateral deals, they would be less likely to endanger multilateral negotiations over such concerns, given solid opposition from the vast majority of developing countries.

A short-term extension of the Bush administration's 'trade promotion authority' (TPA) for the Doha Round remained possible with the new Congress, according to Elliott. "The scenario is not all that different from before. There needs to be a resumption of the talks, and there needs to be enough on the table to get the people in charge interested." She said that though trade might not be a priority for the Bush administration, it could be an area in which concrete achievements are possible. Sherman Katz, a senior associate at the Carnegie Endowment for International Peace in Washington, suggested that the administration might be more willing to expend political capital on trying to extend its TPA if a Doha Round deal or a major FTA with Korea seemed in the offing.

TPA gives the presidential administration the ability to submit a trade agreement package for Congressional approval -- or rejection -- without the possibility of making specific changes. In the absence of TPA, the US would still be free to negotiate trade accords. However, many countries would cease to see it as a credible partner with which to conclude a deal, since Congress would then be free to make specific changes to the agreement.

The WTO negotiations have been suspended since late July, when governments proved unable to agree on farm subsidy and tariff cuts. They are now starting to show signs of life, and Geneva-based trade diplomats believe that there is a window of opportunity until around March 2007 for Members to assemble a 'blueprint' for a Doha Round deal that would offer gains sufficient to entice Congress into extending TPA. However, many blame the impasse on the US' refusal to offer deeper reductions to its farm subsidies, and have argued that Washington must make new overtures in order to revive the talks. The passing of the election may have relieved some of the pressure to not announce subsidy cuts. The Bush administration has maintained in recent months that the US would not budge unless other countries modified their negotiating stances too (see related article, this issue).

Committee chairs to play important roles

Whatever the views of some of the newcomers to the Democratic caucus, a greater role in determining the party's policy on trade will be played by the veteran members who are poised to assume leadership of the powerful Congressional committees responsible for trade and farm policy. Committee chairs wield substantial influence in determining which pieces of legislation make it through to a vote by the entire legislature.

In the week since the election, Democratic leaders have vowed to pursue bipartisan cooperation, in contrast to what they describe as the Republicans' more confrontational style of government.

Charles Rangel, the New York Democrat likely to become the next chair of the House Ways and Means Committee responsible for trade and tax policy, has suggested that he would be open to extending TPA if the administration responded to some Democratic concerns. Like most laws, TPA is subject to Congressional horse trading. Rangel has called for greater cooperation between Congress and the administration on trade issues.

According to the Washington Post, Montana Senator Max Baucus, who is likely to take over the Senate Finance Committee, has said that any legislation prolonging the president's fast-track powers would have to "strengthen labour and environmental provisions in some way to win broader Democratic support." Washington publication Inside US Trade reported on 10 November that he would also want TPA extension to be contingent on expanded support for trade adjustment, better enforcement of existing trade agreements, and increased export promotion efforts. Baucus has been a vocal supporter of providing extra unemployment benefits and retraining funds for people who have lost their jobs due to trade liberalisation.

Rangel and Baucus are currently supporting the administration's thus-far unsuccessful efforts to get permanent normal trading relations for Vietnam approved by the lame duck outgoing Congress. Democrats and Republicans have traded blame for the setback, prompting fears about the viability of bipartisan cooperation on trade (see related story, this issue). Despite his opposition to the Peru FTA, which he wants modified to match International Labour Organization standards, Rangel has expressed support for prolonging trade preferences for African and Andean countries, as well as the Generalised System of Preferences.

Bipartisanship will be essential for agreement on any trade issues, pointed out the Peterson Institute's Elliott. "There are fewer pro-trade Democrats than pro-trade Republicans. [They're] going to have to reach out across the aisle and be bipartisan. You're not going to get support for trade agreements from a majority of the majority" as the Republicans were trying to do, she explained.

Elliott suggested that a TPA extension law containing beefed up language on labour and environmental objectives could win the support of many Democrats. At the same time, Congressional Republicans would not be uncomfortable about how the Bush administration would use such a mandate, as they were when they denied former President Bill Clinton's request for fast-track power in the 1990s. She felt it unlikely that the Democrats would vote against extending the president's TPA for no reason other than to deny victory to a White House with which their relations have been less than cordial.

Clinton's trade representative Charlene Barshefsky told the Wall Street Journal that the Democrats and the Republicans could work together to push the Doha Round forward. "I see tougher sailing ahead, but not necessarily history-altering events," she said about the election.

Some of the toughest sailing will involve US agriculture subsidies. The Democratic Congress' willingness to accept reduced domestic farm support will affect Washington's ability to propose new subsidy cuts in the Doha Round talks. Mike Johanns, the Bush administration's agriculture secretary, has warned that failing to reform certain subsidy programmes could leave the US vulnerable to lawsuits at the WTO. However, the probable new chair of the House Agriculture Committee, Minnesota's Collin Peterson, has thus far called for only minor changes to the high level of spending in the Republicans' 2002 farm bill. This is presumably not the sort of bipartisan consensus that most WTO Members had been hoping for.

Many members of the Democratic caucus have blamed outsourcing and trade agreements for job losses and stagnating median wages. Some of them voted against normalising trade relations with China. Two high-profile Democrats have threatened Beijing with punitive tariffs unless it revalues its currency.

It is too early to know whether these views will carry into power. Politicians everywhere tend to be more shrill in opposition. The Democrats' 31-page campaign platform complained about "jobs shipped overseas," but promised only to end subsidies that give companies an incentive to outsource -- not to restrict outsourcing itself. It did not mention the word 'trade.'

The Swiss Institute for International Economics and Applied Economic Research study is available at http://www.evenett.com/US_Congr_Elections.pdf.

The Public Citizen report is available at http://www.citizen.org/hot_issues/issue.cfm?ID=1471.

ICTSD reporting; "Election pushes globalization to forefront," USA TODAY, 14 November 2006; "Democrats beat Bush with an economy drive," THE OBSERVER, 12 November 2006; "Democratic Gains Raise Roadblocks to Free-Trade Push," WALL STREET JOURNAL, 13 November 2006; "Election Alters Trade Climate," WASHINGTON POST, 14 November 2006; "Free trade is the real election casualty," FINANCIAL TIMES, 8 November 2006; "USDA chief wants Congress to reshape farm supports," REUTERS, 14 November 2006.