The Rupp Report: New Rules With A New President?

The US presidential election is already casting a cloud over the textile world: In many newspapers
around the world, people are questioning if the newly elected US president, Barack Obama, will
tighten relations with the world. Particularly the Far East is quite afraid.

As everybody knows, rarely has an election in the United States attracted more attention
from the rest of the world than this one. After the euphoria, countries around the world are now
evaluating what this Obama victory means for them.

Don’t Export Jobs

During the campaign, candidate Obama said that he would discourage US companies that export
jobs — in other words, outsource — by taking away their tax breaks. For example, he would like to
renegotiate the North America Free Trade Agreement (NAFTA) to strengthen its labor and
environmental provisions. He supports pressuring the World Trade Organization (WTO) to better
enforce agreements and halt government subsidies to foreign exporters, and imposing other
non-tariff barriers on US exports. He also wants to give a face-lift to the president’s fast track
trade negotiating authority to require prescreening of potential US free trade partners based on
their labor and environmental standards and other factors. All these factors point to the
possibility that he will carry a protectionist sentiment when he assumes office — so say the
overall comments in the Far Eastern press.

What About The WTO?

It’s the old saying, “If the United States has a cough, the world has a cold.” In other
words, referring to the WTO, from past history it’s very well-known that the United States is
leading the pace for the global trade regime. When America was most dependent on agriculture and
the textile industry, those two areas remained largely outside the General Agreement on Tariffs and
Trade scope, while textiles were subjected to a special regime.

More recently, labor and environment, two issues that are central to the Democratic Party’s
trade policy, have entered the multilateral trade stage. It seems that the new president will
continue to support the US engagement in the WTO and will support a successful conclusion of the
Doha Round. I suppose Congress will give him fast track authority but will load it with conditions
such as labor and environmental standards and possibly will lower the threshold for initiating
action against subsidies, dumping and other unfair trade practices. This all would be in line with
the ongoing global activities including those related to the carbon footprint, and those more
favorable to Western textile standards.

What About The Asia-Pacific Rim?

However, labor and environmental standards are crucial for some developing countries. They
fear that these standards would be used to discriminate against their exports and legitimize action
similar to anti-dumping measures. That could complicate a resumption of negotiations.

But, what about the whole Asia-Pacific Rim? Will the Asia-Pacific Economic Cooperation
(APEC) forum help? APEC was established in 1989 to further enhance economic growth and prosperity
for the region and to strengthen the Asia-Pacific community. APEC claims to be the only
intergovernmental grouping in the world operating on the basis of non-binding commitments, open
dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral
trade bodies, APEC has no treaty obligations required of its participants. The APEC has 21 member
economies that account for more than one-third of the world’s population (2.6 billion people), more
than 50 percent of world gross domestic product, totaling US$19,254 billion, and in excess of 41
percent of world trade. APEC also represents the most economically dynamic region in the world,
having generated nearly 70 percent of global economic growth in its first 10 years. Will the new
president support APEC?

Under the reins of George W. Bush, the United States reduced its interest down to its main
business. The Asian community is scared the United States will continue to use APEC as a platform
to push its own trade policy interests. The world’s economic leaders are curious to know Obama’s
foreign trade policy. Trade policy is probably not at the top of Obama’s agenda; the financial
market and the economy are more important at the moment. However, the litmus test will come when
the agreement with China to limit its exports of certain categories of textiles and textile
products to the United States via quotas expes at the end of this year. However, the United States
will act as all other nations do, defending its own national interests.

November 11, 2008