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U.S. trade candidate Zients faces heat on agency reform plan

By Doug Palmer

WASHINGTON (Reuters) - A White House plan to stick the Cabinet-level Office of Trade Representative in the Commerce Department could raise some tricky questions for Jeffrey Zients, a senior aide to President Barack Obama who was a key architect of the plan and is now seen as a front-runner to head that very agency.

A former U.S. trade official called Zients' potential nomination to the top trade post "ironic," while a trade policy source said it would be "like putting the wolf in charge of the hen house."

Obama is believed to be leaning toward nominating Zients, who is now acting head of the White House budget office, to succeed U.S. Trade Representative Ron Kirk, who is stepping down at the end of February.

Congressional aides and trade experts say Zients would face tough questioning from Congress over the trade agency reorganization plan if Obama taps him for the job. The plan drew fire from senior lawmakers when it was unveiled early last year.

The former official, speaking on condition of anonymity, said Zients would start on the defensive with the Senate Finance Committee as it vets the nomination, although he would probably still win confirmation in the full Senate.

The proposal unveiled in early 2012 called on Congress to give Obama the power to reorganize the federal government, which Zients proposed to initially use to revamp the Commerce Department into a "one-stop shop" for exporters.

The U.S. Trade Representative's Office (USTR) would be merged with the Commerce Department's core trade and business functions along with other agencies including the U.S. Export-Import Bank, the Overseas Private Investment Corporation, the U.S. Trade and Development Agency and the Small Business Administration.

The plan, which coincided with the Obama administration's efforts to double exports between 2010 and 2014, triggered a loud protest from top Democrats and Republicans on the Senate Finance Committee and the House of Representatives Ways and Means Committee, which have jurisdiction over trade in Congress.

They feared the Zients plan would weaken USTR, an agency that has had Cabinet status since the 1970s under both Democratic and Republican administrations. That is an important matter of protocol that allows the trade representative to meet with top trade officials from other countries.

"Taking USTR, one of the most efficient agencies that is a model of how government can and should work, and making it just another corner of a new bureaucratic behemoth would hurt American exports and hinder American job creation," Senate Finance Committee Chairman Max Baucus and House Ways and Means Chairman Dave Camp said when the plan was announced.

OPPOSITION FROM BUSINESS

A year later, Baucus and Camp remain opposed to moving USTR inside a revamped Commerce Department, congressional aides said.

Eighty-six U.S. business and farm groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers, the Coalition of Services Industries and the American Farm Bureau Federation, also weighed in against the move.

"Most developed economies have a direct counterpart to the USTR that reports to the head of government which lends the position enormous credibility. Subsuming USTR into a broader trade and business government department will severely harm that credibility and USTR's ability to play its unique coordinating role within the U.S. government," the business groups said in a January 2012 letter to Obama.

Claude Barfield, resident scholar at the American Enterprise Institute, said he was disturbed by reports that Zients was the top contender for the post, although like others he stressed that he had nothing against Zients personally.

"It's unfortunate if that signals they are going to bring (the trade reorganization plan) up and really push it. I think it's a bad idea substantively, and I don't think it's going to work for them politically and I don't know why they would waste political capital on that," Barfield said.

Not surprisingly given the opposition, Congress did not act on Zients' plan last year, and it is not clear how committed the White House is to the proposal. A White House spokeswoman did not reply to an email asking for comment.

But Obama in the waning days of last year's campaign seemed to revive the idea, saying the United States "should have one Secretary of Business, instead of nine different departments that are dealing with things like giving loans to (small businesses) or helping companies with exports."

"There should be a one-stop shop," he said.

Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said he worried a White House push for a trade agency reorganization would start a damaging battle with Congress that distracts from what now appears like a promising trade agenda for Obama's second term.

"That's the main problem with this. It's not a new idea. (Former President Ronald) Reagan brought it up. Others brought it up. But it's never been a good idea," Schott said.

Meanwhile, whomever Obama picks to become USTR will preside over an agency where morale has fallen in recent years. In a recent survey of the best places to work in the federal government, it ranked dead last out of 29 small agencies.

(Reporting by Doug Palmer; Editing by Tim Ahmann and Eric Beech)

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