President’s Proposed Reorganization of Trade Agencies

On January 13, 2012, President Obama released a proposed reorganization of the federal bureaucracy, which would see the U.S. Department of Commerce, the Office of the U.S. Trade Representative (USTR), the Overseas Private Investment Corporation (OPIC), the Small Business Administration, the Export-Import Bank, and the U.S. Trade and Development Agency (USTDA) merged to form a new super department. In addition, the National Oceanic and Atmospheric Administration would move to the Department of the Interior. The White House claims that this move would save the federal government $3 billion over 10 years and eliminate 1,000 jobs.

This proposed move represents a significant step forward in reorganizing the federal bureaucracy to function in the twenty-first century. Although there is some wisdom in combining the Department of Commerce with the Small Business Administration and the Export-Import Bank, there are significant concerns about the inclusion of USTR, OPIC, and USTDA in the proposed department. These independent agencies are small, flexible, and successful in their missions. Their success is largely because they’ve remained independent, small agencies separate from the larger bureaucracies in Washington. Rather than involving these three agencies in a massive organizational chart move, it would make more sense to focus on their authorization, resources, and mandates. (See Critical Questions of May 2011 and November 2011.)

Q1: What is the president trying to accomplish, and is he likely to be successful?

A1: The president is trying to get out ahead of the on-going debate on fiscal austerity and the broader discussion of the effectiveness of the federal government. It is well within the president’s prerogative to propose and execute certain changes to the organization of the executive branch, pursuant to his executive authorities. There is truly a need to consider a fresh approach to how the federal government is organized—both from a cost-saving perspective, as well as how effective it is in achieving its many missions.

The government the United States presently has is not the one that would be designed today, in the twenty-first century. But before Congress passes broad “fast-track” authorizing legislation for purposes of government consolidation, as the president is requesting, members may require a more detailed proposal from the White House. Another option would be for the Congress and the administration to draft legislation together, now that the president has drawn attention to certain problems.

Q2: What are the benefits for USTR, OPIC, and USTDA in the new Department of Trade and Innovation?

A2: The most obvious benefit for these three agencies is if they gain access to the Foreign Commercial Service (FCS), currently part of the Department of Commerce. It is possible that FCS could be transformed into a broader foreign service by, for example, redirecting and renaming foreign commercial service officers to be “transaction officers” and broadening their mandate. This would give OPIC and USTDA an on-the-ground presence in foreign markets, which these two agencies presently lack. If the new transaction officers had the authority to make financing deals, this would greatly expand the ability of these two agencies to do their job.

Q3: What are the downsides to the proposed new department?

A3: Although the White House claims savings of $3 billion over 10 years, several individuals who are familiar with Office of Management and Budget (OMB) cost-cutting scenarios believe that this sort of large-scale bureaucratic reorganization does not save the amount of money claimed. More broadly, this new department will likely have an adverse effect on the character of the smaller independent agencies being subsumed into it, in particular, USTR, OPIC, and USTDA.

USTR is a specialized agency that has the primary mission of negotiating trade agreements and otherwise addressing market access barriers to U.S. exports in foreign markets. Importantly, USTR is also responsible for coordinating trade policy across the federal government. Congress explicitly placed USTR in the executive office of the president, in order for it to manage U.S. trade policy and to be empowered to strike a balance between the sometimes competing agency interests, such as those of the Departments of Agriculture and State. This coordinating ability would likely be compromised if USTR becomes a sub-department of a large super trade bureaucracy. If this happened, many observers have noted that it is likely the White House would have to recreate a trade policy coordinating function separate from the integrated department, thus negating some of the claimed savings of the proposed move. Given that USTR is well known for its track record of success in prying open markets abroad for U.S. businesses, farmers and workers, there is a real danger here of breaking an agency that is lean and highly effective.

OPIC’s inclusion in this new department is particularly troubling, because it confuses its core function. OPIC is not a trade- or export-promotion agency, rather it is an international development agency. It functions as the United States’ development finance institution, which allows it to funnel U.S. private investment to the developing world. OPIC is a specialized, successful agency and is the only federal agency or department that earns a profit every year, which enables it to be completely self-funded. Since it was created in 1971, OPIC has returned $5 billion to the U.S. Treasury in profit. Its ability to do this and quickly execute deals would be severely limited within the new super department.

Finally, like USTR and OPIC, USTDA is a small, specialized agency that is a flexible instrument due to its ability to move fast. During the Arab Spring, USTDA was the first U.S. government agency out of the gate with a proposal to engage the new Arab governments economically. This ability to move fast would likely be stymied if USTDA were placed within a large super-bureaucracy.

Daniel F. Runde is director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Meredith Broadbent is a senior adviser and holds the William M. Scholl Chair in International Business at CSIS.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2012 by the Center for Strategic and International Studies. All rights reserved.