The issue of trade policy – as critical to the nation’s future as Iraq and every bit as divisive – is now squarely before the Democratic Congress. It will almost certainly provide a huge challenge to its leadership.

The stage was set by a painfully negotiated deal between the White House and Democrats, announced last week, on the terms of trade in pending agreements with Peru and Panama.

Those agreements with two small nations are just the overture for a much larger debate involving tariff-cutting deals with Colombia and South Korea. And then comes the monumental question of whether to give President Bush the same free hand as his predecessors have enjoyed in negotiating global and regional trade agreements, not amendable by Congress but subject only to an up-or-down vote.

Before last week, there was no chance Bush would be trusted by a Democratic Congress to look out for the interests of American firms and workers in any such negotiations. Now there is a chance – but only a chance – that the United States will be able to take its usual leadership role in moving the world toward an open trading system.

What created this opportunity was that after months of saying “no,” the lead negotiators for the White House, Treasury Secretary Henry Paulson and U.S. Trade Representative Susan Schwab, finally said “yes” to the inclusion of labor and environmental guarantees in the body of the trade agreements.

Such provisions – requiring signatories to enforce internationally recognized standards banning child labor and prison labor and permitting union organizing, as well as enforcing their own environmental laws – had been included in the final trade agreements negotiated by the Clinton administration and approved by Congress.

But Bush, responding to pleas and pressure from his business supporters, balked at making them part of the basic agreements – and Democrats in Congress got their backs up.

Last week, congressional negotiators, led by Chairman Charles Rangel of the House Ways and Means Committee, finally got the deal that would allow early action at least on the agreements with Panama and Peru.

In my conversations with Schwab and with Rep. Sander Levin of Michigan, the chairman of the Trade Subcommittee of Ways and Means, it was clear that more work remains to be done before Colombia and South Korea can expect Congress to act on their cases.

Levin said that the government in Colombia, which is allied with the United States in opposing the influence of Venezuela’s leftist Hugo Chavez, must do more to curb violence targeted at union organizers. And Levin, representing an auto district, wants South Korea, which ships thousands of cars to the United States, to open its doors to American-made vehicles.

Nonetheless, both Levin and Schwab describe last week’s agreement as “an important first step” toward rebuilding a bipartisan coalition behind a trade policy that expands the volume of shipments into and out of this country – but raises labor and environmental standards instead of degrading them.

That is what Levin calls “expanding the circle of those who benefit from globalization,” a healthy step beyond the old and futile debate between “free trade” and “protectionism.”

But there are some forces in the Democratic Party and elsewhere reluctant to abandon the old rhetoric – or the old fights. Bloggers such as David Sirota and interest groups such as the U.S. Business and Industry Council condemned the new agreement and vowed to fight the issue.

Because most Republicans are on the side of liberalizing trade, the key question is how many Democrats will support trade agreements negotiated by a Republican administration.

When I asked Rep. Rahm Emanuel, the chairman of the House Democratic Caucus, his answer was “maybe 60 to 90,” substantially less than half the Democratic membership but perhaps enough to make a majority with Republican votes.

What Emanuel – who in an earlier life as a Clinton White House aide worked to pass the North American Free Trade Agreement – also said is that dealing with the effects of globalization requires much more than smart trade agreements.

America’s education and health care systems also need attention, he said, and so do our incentives for investment in modern technology – if we are to be prepared for competition from India, China and other nations. He is right, and if the coming trade debate opens up all of those issues as well, so much the better.