White House Push to Streamline Federal Government Sparks Trade Questions

18 January 2012

US President Barack Obama is seeking congressional authority to reorganise the federal government, starting with various commerce and trade-related agencies, including the Office of the US Trade Representative. The 13 January announcement has observers questioning what such a move could mean for US trade policy, and whether this merger would even receive congressional approval during what is expected to be a contentious election year.

In describing the plan on Friday, Obama underscored that reforms were necessary for the government to keep up with the needs of a "21st century economy" by reducing inefficiencies and redundancies in the current set-up.

The Executive Branch formerly had authority to "fast-track" government reorganisation, in which the President could merge agencies and submit the changes to an up-or-down vote by Congress; this authority ended in 1984.

The agencies that would first be targeted by such reform would include the US Department of Commerce's core business and trade functions, the Small Business Administration, the Office of the US Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the US Trade and Development Agency

Under the Obama plan, all six agencies would be housed under the same roof. The White House argues that the merger could save US$3 billion and result in reductions of 1,000 to 2,000 jobs, mostly through attrition.

Without further details, it would be difficult to tell what form such a merger might take, WorldTradeLaw.Net President Simon Lester commented.

"My guess is that they're not looking to make a major change in the way US trade governance works," he continued, adding that such changes could still be possible.

In the past year, the Obama administration has pushed trade higher up on the White House agenda, spending the summer and autumn months pushing for the ratification of the long-awaited South Korea, Colombia, and Panama free trade agreements - which became law in October after years of political wrangling - and promoting the proposed Trans-Pacific Partnership agreement.

The agency merger is also key to the goal of increasing US exports and therefore creating jobs, the White House says. The Obama administration has set a goal of doubling US exports in five years - from US$1.57 trillion in 2009 to US$3.14 trillion by 2015.

With the US presidential election set for November of this year, many observers have questioned whether Obama's announcement is more of an election year gambit - given that reducing the size of the federal government has long been a key issue for the opposition Republican Party - or a real effort to streamline the government.

"My sense is that it's more about domestic politics," Lester said.

Congressional committees, industry groups weigh in

The announcement was quick to draw responses from lawmakers and industry groups, many of which questioned what such a merger might mean for US trade policy.

Senate Finance Committee Chairman Max Baucus, a Democrat from the US state of Montana, and House Ways and Means Committee Chairman Dave Camp, a Republican from the US state of Michigan, issued a joint statement on Friday expressing qualms over the proposal.

"While we welcome the ability to reduce duplication and streamline government services, we are concerned about the impact that the President's proposal could have on the ability of the United States to aggressively open new markets to American-made goods and services and create US jobs," they said.

Industry groups also expressed scepticism over whether such a proposal would even make it through Congress, with the National Foreign Trade Council stressing that the US legislative branch has "historically been reluctant to combine USTR with other functions, preferring to have our chief trade negotiator concentrate on negotiating rather than be burdened with broader programmatic responsibilities."

Election year difficulties

Gary Hufbauer, senior fellow at the Washington-based Peterson Institute for International Economics, also found that such a proposal might struggle to make it through Congress in an election year, given that the various agencies that Obama wishes to reorganise currently report to different committees on the Senate and House side.

For example, the US Department of Commerce reports to the Commerce committees of the two legislative chambers, while the Senate Finance and House Ways and Means Committees jointly have oversight over the Office of the USTR.

"The problem is that, if you combine them into one unit, who in Congress gets oversight on that?" Hufbauer asked.

The potential conflicts in Congress over which committees would have jurisdiction over this new proposed trade agency could make it difficult for this reorganisation to happen before the 2012 presidential election.

"The real test is, if [Obama]'s re-elected, whether he pushes for it in 2013," he added.

Washington-based trade lawyer Scott Lincicome also underscored the potential challenges Obama might face in getting Congress to sign off on the proposal.

"To reorganise these agencies, because of their different mandates, because of their different structures, would require a pretty significant lift by Congress and a lot of co-operation between administration and Congress - and do we really expect that in an election year?" Lincicome noted.

"Even in the best of years, it would be difficult," he continued.

After the authority expired in the mid-1980s, other US presidents also asked for such reorganisation authority - requests that did not make it far. "It's not a radically new suggestion - it's been put out there before," WorldTradeLaw.Net's Lester commented.

Trade negotiation, litigation - who has authority?

Some trade observers have also raised questions as to what the merge might mean for the USTR's role as a trade litigator and negotiator, should the Department of Commerce and the USTR indeed be placed under the same roof.

Noting the potential tensions that could come from having the Commerce Department and USTR in the same house, Lincicome stressed that "the big question in my mind is who is really the more dominant force in the new agency. Is it going to be the Department of Commerce, or is it going to be the USTR?"

The Office of the US Trade Representative (USTR) is the US' lead trade negotiator, and handles the US' trade litigation at the WTO. Trade litigation within the US, however, is handled by the US Department of Commerce, whose focus has traditionally centred more on export promotion.

Former USTR Susan Schwab, who held the post from 2006 to 2009, told Bloomberg that "you want from the Commerce Department a full-throated unapologetic advocate for the US industry. You don't want an agency that has to pull its punches."

However, one trade lawyer speaking to Bridges predicted that the proposed merger would not cause changes in either the US' trade negotiation or international trade litigation, noting that "the vast majority of countries do both from a single ministry."

Meanwhile, House Ways and Means Committee Ranking Member Sander Levin, a Democrat from the US state of Michigan, has argued that having the USTR as a small, specialised agency has its advantages.

Levin, responding to the announcement, underscored that "Congress established the Office of the US Trade Representative, within the Executive Office of the President, because our trade objectives were not adequately negotiated, implemented or emphasised when trade negotiators and enforcers were part of a broader agency."

According to the White House, the USTR would not lose its Cabinet-level rank under such reorganisation.

Even with these assurances, however, many question what role the head of the new entity might have - whether he himself would take on the role of the US' lead trade negotiator, or whether there would be a separate US trade negotiator that would be subordinate to him.

"It doesn't seem to me to make any sense unless [the new agency chief] is chiefly a trade negotiator," Hufbauer cautioned.

"If the top trade negotiator is subordinate to him, then you get the top trade negotiator going and having to say, in some language or another, that he wouldn't be able to make a decision himself and would have to report back [to Washington]."

ICTSD reporting; "Obama's Reorganization Raises Concerns About Trade Effectiveness," BLOOMBERG, 14 January 2012; "Obama wants export agency, closing of Commerce Department," REUTERS, 13 January 2012; "Commerce revamp could weaken trade policy," WASHINGTON POST, 14 January 2012.

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