Democrats Lose By Pandering To Unions On Free Trade Issue

By pandering to another interest group, the AFL-CIO, the Democratic presidential candidates on Tuesday made it more difficult for one of them to oust President Bush next November.

With three momentary exceptions when Sens. Joe Lieberman (Conn.) and Bob Graham (Fla.) showed some courage and independence, the nine candidates fell all over themselves to tell the trade union convention in Chicago exactly what it wanted to hear on every issue.

In the process, candidates-Sens. John Kerry (Mass.) and John Edwards (N.C.)-abandoned previous positions in favor of free trade, an idea that is popular with Americans almost everywhere but at the AFL-CIO. And former Vermont Gov. Howard Dean, who wasn't asked a question about trade, has indicated elsewhere that he, too, is backing away from his previous free-trade stance.

The labor movement is determinedly protectionist, following an archaic economic model that envisions keeping U.S. wages up by keeping cheaper foreign products out-yet at the same time insists that other countries buy U.S. goods even though their workers can't get richer by selling to the U.S.

Free trade economics-once embraced Democratic party, but now a Republican idea-holds that workers everywhere get richer when their countries can sell their products in world markets and buy commodities at the cheapest price.

Or, Graham said in one departure from AFL-CIO orthodoxy, "the United States does not have the choice to become a protectionist nation. We are the leader of the world economy."

In another show of independence, Lieberman said that he'd "probably," vote in favor of a Free Trade Area of the Americas (FTAA), which the Bush administration is currently negotiating.

A Pew Research Center poll published in June shows that the idea of open global markets is popular around the world-even in the U.S. during a time of economic uncertainty.

According to the poll, 79 percent of Americans say that global trade and business ties are "very" or "somewhat" good for the country. By 62 percent to 23 percent, Americans say that "globalization" has a "good effect" on the country. And 81 percent think it's good that goods from around the world are available in the U.S.

If they follow the AFL-CIO line, Democrats will slam smack into those public attitudes-and will be accused by Republicans of wanting to close America off from world markets that will continue to prosper without the U.S.

Among the serious Democratic candidates, the most loyal to the union line is Rep. Dick Gephardt (Mo.), who boasted that "I am the one who not only voted against, but led the fight against, NAFTA (the North American Free Trade Agreement) and China free trade and Singapore and Chile" free trade agreements.

"Check our record. Check who was there when the fat was in the fire and we had to fight against even our own president to beat NAFTA and beat China."

In spite of that record-and endorsements from 10 individual unions-Gephardt is not likely to get an early endorsement from the AFL-CIO as a whole.

It was apparently to forestall that development-and woo union households in early primary states-that Kerry and Edwards backtracked on their free trade records.

During the Clinton administration, Kerry supported NAFTA, normal trade relations with China and "fast track" negotiating authority for the president. He supported "fast track" again-now known as "trade promotion authority"-under Bush.

Edwards voted for China free trade, courageously standing up to textile interests in North Carolina, and voted once in favor of trade promotion authority and once against it.

In Chicago, Kerry was asked how he'd vote on a yet-to-be-finalized FTAA. He replied, "If it were before me today, I'd would vote against because it doesn't have environmental or labor standards in it."

Edwards said that "we can have free trade, but we need fair trade also, which is why I voted against fast track, why I voted against the Singapore Trade Agreement, why I voted against the Chile Trade Agreement, why I voted against the Caribbean Trade Agreement."

Dean, who once called himself a "strong supporter" of NAFTA and supported fast track during the Clinton administration, has indicated lately that he'd "renegotiate" NAFTA to insert more labor and environmental standards.

Bush administration officials contend it would be seen as a violation of other countries' sovereignty-or as an attempt to put them at a trade disadvantage--to compel them to change their labor or environmental laws.

Instead, it its aggressive drive for new bilateral, regional and global trade agreements, the administration instead requires countries to live up to their own laws-and, if they don't, to pay fines that are used to upgrade labor and environmental standards.

Labor and its adherents don't regard such provisions as adequate. In fact, they haven't found any open trade agreement they can support, even when it's negotiated by a Democratic president.

In the only other moment of independence shown in Chicago, Lieberman said he favors school voucher experiments to allow poor children to attend private schools and create competition for public schools to help them approve. He was booed.

The Democrats have put in pandering performances now before the Children's Defense Fund, the Human Rights Campaign and now the AFL-CIO. Is it any wonder that voters find them too beholden to special interest groups?

The Steel Tariff was not just a jobs issue, but rather a national security one. This is what convinced W to protect the industry against a combined foreign attack:

See: Insight on the News - National Issue: 08/19/03

U.S. in Steel Trap By J. Michael Waller

When the U.S. Army decided it needed new berets for every soldier, it had to go to Communist China to have them made. No U.S. company could produce them to the required quality and specifications, Army officials said. An outraged Congress intervened to break the contract with the Chinese supplier and issue it to a small American company.

The Army's Chinese-made berets became the butt of jokes around the world. But the underlying questions, industry and defense analysts say, are no joke. The black-beret fiasco illustrates a looming crisis in the nation's defense-industry base and its overall readiness infrastructure. The United States is losing its industrial capacity in key areas and soon will become totally dependent on foreign sources for some of the basic raw materials for its military machine. Defense planners now are worrying about where the Pentagon will go a decade from now for strategic materials as essential as steel.

If present trends continue, the United States soon will be unable to build tanks, armored vehicles, guns, bombs and warships without depending on foreign steel. The trends are so troubling that the Department of Commerce and the Department of Defense (DOD) are studying the effect on national security of increasing U.S. dependence on semifinished steel imports and on the country's diminishing capability to produce its own steel from domestic iron ore.

Even in the high-tech sectors where it is the world leader, the United States is abandoning its independent approach and teaming up with foreign companies and governments to build some of its most advanced systems. The Clinton/Gore administration decided as a matter of policy to make the U.S.-led International Space Station dependent on key Russian components, allowing the Kremlin veto power over how the manned satellite is operated. Even among allies, the United States is placing key components of high-tech weapons systems in the hands of foreign governments. President George W. Bush has offered to let fence-sitting allies from Germany to Japan profit from development of the proposed missile-defense system. The new Joint Strike Fighter (JSF) is to be produced in cooperation with the United Kingdom.

With free-market approaches taking on almost religious fervor in Washington, many policymakers are content to let domestic industries die, regardless of any strategic national-security importance they serve, if foreign suppliers can meet current needs. Libertarians and many conservatives argue that strategic industries shouldn't be protected at all. Others argue there is a huge difference between subsidizing milk production to keep consumer prices artificially high and supporting an industrial or service sector vital to national defense. Within the latter camp is a division about whether to try to preserve domestic capabilities or to make the best of world changes and try to partner with other countries.

"You used to have the idea that we wanted to maintain complete capability in this country, to provide all necessary capabilities in case of war," Steve Bryen, a deputy undersecretary of defense for former president Ronald Reagan, tells Insight. "That idea has changed quite a lot. For the most part, a lot of the stuff we're using in the defense world is commercial. It's not purely military — computers, communications technology, etc. That stuff is global. In that regard, the concept of trying to maintain a North American defense industrial base has changed quite a lot and I'm not sure you can do it any more."

Reagan recognized the importance of protecting certain strategic industries. In the mid-1980s, when U.S. manufacturers opted for cheaper Asian-made machine tools, Reagan imposed import restrictions at the risk of shutting down the domestic machine-tool industry. At the same time his administration, with Bryen's active involvement, supported research and innovation to help the U.S. machine-tool industry become more competitive and profitable and to remain a core of the nation's defense-manufacturing base.

Steel producers now are arguing for similar action from President Bush and are praising him for already moving toward protecting the steel industry from foreign dumping. Some say Bush is doing it to get union votes, while others hope that he frames the issue on national-security grounds. "The president must decide that the national- and economic-security interests of the United States require a limitation of [imports of] semifinished steel in order to maintain integrated melting capacity in the United States to serve the defense, vehicle and can-making industries," says Roger B. Schagrin, a representative of Cleveland-Cliffs Inc., the largest producer of iron ore in North America.

Bryen doesn't buy the national-security argument of the steel industry. But he agrees that globalization radically has changed the way defense planners think about how to develop and manufacture weapons and defense technologies. "If we still believe that we're going to have allies, and if we want to have a cost-effective approach, we have to be more open, but with more firm and stronger security agreements," he tells Insight.

"Because of the nature of the global marketplace and what it's starting to look like, we have to think of more consortia with good partners, but we have to build security into those consortia," Bryen says. "The problem has been in the past that a lot of these technology coproduction arrangements really didn't have much security attached to them. I think nowadays we have to work out security agreements with prospective partners, and we should do more partnering rather than less. It's a way of lowering the unit costs of defense hardware." One example is JSF, the next-generation aircraft expected to go into production in a consortium with British defense companies. "The more you can distribute manufacturing among a number of countries that are friendly on the security issue, you have a better chance to lower costs."

That's also the argument of many U.S. steel producers, who find it unprofitable to upgrade their own blast furnaces but profitable to roll out finished products using imported semifinished steel. Those closest to the mining sector agree, but hope to persuade decisionmakers in Washington that they perform a unique national-security function.

Part of that function is assured production of steel during protracted conflict. Another part concerns U.S. power projection. "It is a tenet of U.S. policy that the national, economic and military security of the United States depends on its position as a maritime power and the strength of its national maritime infrastructure," says George J. Ryan, president of the Lake Carriers Association, which represents 12 U.S. companies operating ships on the Great Lakes.

That is how it has been since the dawn of the nation. But in recent years "Washington has not followed a policy to leverage its position as the world's largest trading nation into leadership in maritime commerce or industry," says William R. Hawkins, an analyst with the U.S. Business and Industrial Council (USBIC).

Indeed, decisionmakers in Washington seem to have abdicated the country's maritime role completely. Apart from the shrinking Navy, the Pentagon has watched as the Merchant Marine — the force of experienced civilian sailors called into active duty to man the Navy's cargo fleet during wartime — dwindle almost beyond repair. The Navy needs more than 3,500 merchant sailors in wartime, but there simply aren't enough any more to operate military sealift while keeping the civilian shipping systems going.

Vice President Dick Cheney learned a decade ago as secretary of defense during Operation Desert Shield how severely handicapped the Navy's sealift capacity had become with the erosion of the Merchant Marine. Many of the merchant sailors called up for the Persian Gulf War were in their 70s. The problem only has become worse in the decade since. As the Baltimore Sun recently discovered in a lengthy investigation, the fleet, with some 3,500 sailors, no longer is capable of servicing a modest conflict the size of the Persian Gulf War. New government regulations are causing the pool of qualified retirees to disappear and lose their certifications. That is, if the Pentagon can even find the sailors it needs during a crisis, since no database exists to locate qualified merchant seamen.

The shippers of the Great Lakes say that their endangered industry makes an important contribution to the active-duty pool of merchant sailors. They have benefited from the Jones Act, a law passed after World War I that requires ships transporting cargo and passengers between U.S. ports to be owned by U.S. citizens, built in U.S. shipyards and manned by U.S. citizen crews. "Without the critical mass represented by the domestic fleet, the United States would be unable to sustain the maritime infrastructure essential to national defense," says Ryan. "In a crisis, nearly 95 percent of arms and matériel is moved by ship. In the Bosnian conflict, 70 percent of the U.S. seafarers activated for military service had served on Jones Act vessels, including those operating on the Great Lakes. This is not surprising since 87 percent of all U.S.-flag shipboard-employment opportunities are in the Jones Act fleets."

Kill the last U.S. iron mines on which Great Lakes shipping depends, advocates say, and the United States is killing off an important part of the Merchant Marine — another point in favor of rescuing U.S. steel.

The Maritime Administration, which regulates the merchant shipping fleet, says the U.S.-flag cargo force is "large" and "diverse," consisting of 29,446 vessels. But those figures are designed to mislead the public, according to the Baltimore Sun investigation, which found that only 610 of these vessels have engines. Discounting those ships owned by the federal government, chartered by the military, serving in the Great Lakes, mothballed or too small to be considered oceangoing, the active deep-sea fleet numbers only about 220 ships.

And the dumping of foreign steel in U.S. markets imperils the Great Lakes fleet as well as the shipyards that build many of the Navy's auxiliary vessels and Coast Guard ships, advocates tell Insight. "The fleet on the Great Lakes is able to exist as a national-defense asset because it has commercial cargo to carry. The primary cargoes are iron ore and stone for the steel industry. Take a substantial portion of that cargo away and the United States loses a part of its national-defense infrastructure," according to Ryan.

He says the issue is simple: If the United States doesn't protect its Great Lakes steel producers from foreign dumping, the mines will shut down. When the mines shut down, the fleet of giant, warship-size ore carriers must be scrapped or sold to foreign steel producers. "Without U.S.-flag lakes vessels to build, maintain and modernize, Great Lakes shipyards would not be economically viable and thus would be lost for national-defense needs," says Ryan. "Iron ore for the steel industry is the backbone of U.S.-flag shipping on the Great Lakes. Loss of this cargo to unfair imports would decimate the U.S.-flag Great Lakes fleet. Gone too would be the maritime capabilities and infrastructure that play a vital role in our nation's national defense."

Concern about the Merchant Marine has reached a state of alarm. "It's tragic, really, that it's gotten to this point," former Maritime Administration chief John A. Gaughan told the Baltimore Sun. "I think if you took all of us who have been maritime administrators and lined us up, and if we were honest, we would all have to say that we failed."

Again the problem comes back to trade policy. The American Steamship Co., which operates 11 ships on the Great Lakes ranging from 635 to 1,000 feet in length and capable of carrying up to 60,000 tons of cargo, has been decimated by the dumping of foreign steel on U.S. markets. "Throughout the 1990s, the shipment of iron-ore pellets alone represented over 50 percent of the annual demand for our industry's services," says American Steamship Co. Executive Vice President Jerry Welsch. "When you consider other commodities that we transport that are related to the steel-manufacturing process, our industry's dependence on steel-making more closely approximates 80 percent."

According to Schagrin, semifinished steel imports more than quadrupled during the Clinton/Gore years, while three U.S. integrated steel producers "permanently shut down blast-furnace operations and either shut down all steel-making activities or became converters of imported steel."

Welsch says, "The most troubling aspects of the crisis we are facing today are threefold: the absence of any immediate respite, the threat of further market contraction in the future and the realization that a portion of business already lost likely will be permanent. Imports are continuing to enter the U.S. at a debilitating rate, and the litany of bankrupt steel companies is continuing to grow. The ripple effect on our industry is already being felt. It is clear that no amount of cost-cutting, management ingenuity or improved efficiency can remedy the permanent loss of a customer base that represents such a significant component of our total market."

Kevin L. Kearns, president of the USBIC, tells Insight: "The U.S. steel industry went through a wrenching reorganization, modernization and downsizing in the 1980s, shedding about 400,000 jobs and becoming the world's most efficient and most environmentally responsible. But those steps weren't enough to compete with the dumping, especially since the 1997 financial crisis. Now 18 of the approximately 70 steel producers in the United States are in bankruptcy, with many others threatened."

The industry is dying at home, while it explodes abroad in countries that subsidize their industries or artificially lower their costs through totalitarian controls. No new blast furnaces have been built in the United States since the early 1980s, but during the last decade they have been built in the European Union, Eastern Europe, the former Soviet Union, Brazil, China, Korea and Taiwan.

"The expenditure of capital into the billions of dollars to build new blast furnaces in the United States at a time of world overcapacity in steel is not a viable consideration," according to Schagrin. "However, the administration must understand that the question confronting the U.S. industry is whether currently operating blast furnaces will be shut down or relined at a cost of $80 million to $100 million per blast furnace." For U.S. producers, processing foreign slab steel is far more economical: "Each and every integrated steel producer in this country considers it not only a viable, but a clearly more profitable option to turn to the conversion of low-cost imported slab instead of making investments in their blast furnaces."

As Welsch sees it, "The permanent loss of American jobs may only be the initial cost. The national-security relevance of each company, singularly represented, can be debated. What is undeniable is the importance to national security of the infrastructure represented by this collective group and therefore the importance of an economically viable domestic iron-ore mining and steel-manufacturing industry."

In Bryen's view, the United States has three choices: "The first choice is to do nothing. The second is to subsidize the industry in some form, even by blocking competition or providing money to modernize steel furnaces. The third is to say, 'I won't interfere in the economic process, but I will protect my national security with a stockpile.' You stockpile when you expect and plan for a very long war. The reality is that we're not planning for a very long war at this point. We don't have that kind of opposition or problem. For a commodity like steel, I can't see it being done. I could see it for some exotic materials, like for sensors, missiles or some sort of nuclear material like beryllium, but not for steel. So I think we'd pick choice No. 1."

Fine, but then what does the United States do for a Merchant Marine?

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