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Amidst this enthusiasm, however, voices of skepticism about the US policy are being sounded--not by the usual anti-globalism voices but, in this case, by strong advocates of free trade. The essential issue they pose is whether, as the US enters into more and more bi-lateral agreements, it is undermining the more comprehensive regional and global approach that has traditionally been American policy?
Questions abound. Is this bi-lateral approach motivated by trade or politics? Will country-exclusive agreements erode fundamental commitment to the World Trade Organization? Is the Bush administration shifting trade emphasis away from Europe and Asia to less developed parts of the world? The answers are critical to world traders.
To address these and other issues, World Trade Magazine, in collaboration with the Alston and Bird law firm, convened a prominent group including the Assistant U.S. Trade Representative for the Americas and the Brazilian Ambassador to the US, to an informal Washington luncheon conversation in late February to discuss "Free Trade Agreements: Implications for U.S. Trade".
An excerpted summary of the remarks follows. -Neil Shister, Editorial Director
"We just concluded our negotiations with the five countries of Central America. Globally, the U.S. right now is in the process of negotiating an additional eight FTAs (Free Trade Agreements), and in fact just since Cancun we've announced plans to move forward with eight more FTAs. So, this bilateral phenomenon is certainly catching on. These endeavors are ones that will have a major impact on U.S. trade, and the potential to impact on global trade and the global trading system. But the first point I'd like to make is that no one should assume that this aggressive trade liberalizing agenda means that we have abandoned the multi-national or global approach. A very core part of the US trade policy is to be able to negotiate at multiple levels at once.
Let me give you eight reasons why these bilateral agreements further U.S. trade interests
1. First of all, they level the playing field for US companies, farmers and workers. We didn't create this bi-lateral path. Europe already has some 30 of these agreements, and the fact is our country is being disadvantaged by not playing to level the field.
2. They create a competitive incentive to liberalize. If we only put our eggs in the WTO, any one country out of 144--as we saw so clearly at Cancun--could block progress.
3. Bi-lateral agreements are contagious. Success breeds success. In the aftermath of the Chile agreement we're seeing other countries in the region coming to us asking 'what kind of reforms do I have to contemplate in order to be able to liberalize trade with the United States?
4. They encourage regional integration and investment. This is very key. You can see this particularly in Central America where for the first time you have five countries with very different political histories coming from recent violent pasts, pulling together to unite their economies using the United States as a catalyst.
5. Bi-lateral agreements let us break new ground and set higher standards. In our FTAs we've been able to go beyond the Uruguay Round on intellectual properties, on services, on e-commerce, on telecommunications, on express delivery, and so on.
6. Economic reform. I really want to emphasize the role of transparency in these agreements. They build institutions; they establish the rule of law; they contain strong anti-corruption provisions.
7. The bilaterals also have given us more leeway to work on the issue of 'how do we build trade capacity building'? We've worked with each of these countries to develop their own set of priorities, their own action plan, and we've marshaled US resources for it and managed to pull in multi-lateral development institutions."
They lend momentum to the other trade initiatives. Current and potential FTA partners are at the forefront of those countries pushing for ambitious results in the FTAA.
"Over the last 30 or 40 years, there's been a consistent pattern of multilateral approaches by the United States, going back to the Kennedy Round in 1967, the Tokyo Round in 1979, the Uruguay Round in 1994, with of course a few exceptions, NAFTA being probably the most prominent.
However, I would submit that the U.S.T.R.'s approach in the last two years has been a bold departure from prior U.S. policy. The U.S. recently has concluded agreements with Singapore, Jordan, the CAFTA countries. We're in negotiations with Morocco, Bahrain, Dominican Republic, Australia, others in the works are Colombia, Peru, Ecuador, Bolivia, the South African Customs Union, Thailand and possibly others with Panama, Tunisia, Kuwait, Sri Lanka and the list goes on and on.
U.S.T.R. has called this a "competitive liberalization," a safety valve for stuck multilateral negotiations, and a spur to try to reach agreement in the multi-lateral context. Maybe so. But there are other questions:
1. Do bilaterals really help achieve agreements in the multilaterals, or are they really symptomatic of a breakdown of the system?
2. What are the criteria for entering into bilaterals? Trade economics or is it really political motivation? Looking at the list of countries I just read, is it a reward in certain cases for supporting the U.S. war on terrorism, or other political motivations, a sort of 'economic coalition of the willing', as one commentator has said.
3. What does this do to one of the underlying principles of the WTO, which is most favored nation rule-namely, the lowest tariff applicable to one member must be extended to all members?
4. Despite the rhetoric of 'state of the art agreements', there are differing rules, such as rules of origin, between these various agreements. How as a practical matter does this play out when it comes to a U.S. company, or a foreign company for that matter, trying to comply, trying to position itself strategically in international trade if you're going to have a patchwork quilt of dozens of these trade agreements with nuanced differences between them?
What sense do some of these agreements make? Some of them are with tiny or poor countries which have really no appreciable trade with the United States. What is the end game here?"
"Since Regina is here I'll make my comments on my personal capacity, not as an Ambassador. It's safer and it is a good example of a diplomatic nicety. You read the list of trade agreements and... there is one characteristic to it, they are all with small countries. It's easier to get what United States wants on a bilateral agreement,especially with small countries, than in the multi-lateral Geneva negotiation. I think that these free trade agreements have less to do with trade than with other aspects that were included in Regina's presentation. If you look in to them, you'll see that the major products of all of these countries are not contemplated in the trade liberalization.
So they are not free trade agreements in the strict sense, and they are not making trade more free, or more fair. In the case of agreements recently negotiated, they helped the United States to create precedents in other negotiations, which is a good thing for the United States. I think that as a policy, it is brilliant, because it helps the objective that the United States has in trade policy, in foreign policy. But in terms of pure trade, it won't help much...
When the United States decided to include bilateral agreements in its trade negotiations strategy, you saw one thing that never happened before. The Asian countries started to negotiate or to discuss bilateral agreements as well. Japan never embarked on any regional trade negotiation. Now they are negotiating. The same with China, and other Asian countries. From your US perspective, since you have global reach, and your companies are everywhere, I don't know how this will impact your export to these areas. By definition, if Asian countries negotiate preferential agreements, your exports will be affected in important markets such as Japan and China."
"Where Caterpillar would come down is somewhere in the middle, but not quite dead center.
Caterpillar has long believed that we compete best in a free trade environment. When trade barriers are removed we can better meet customer needs and grow more easily.
As important as NAFTA was for Caterpillar, the Uruguay Round was many times more important. In the 1980s and early 90s we championed a notion called the zero-for-zero tariff proposal. As a result tariffs were eliminated in more than 20 developed countries. These were important markets that included Japan, South Korea, Hong Kong and all the countries of the EU. From that experience we learned that multilateral agreements are by far the most efficient way to open markets on a large scale.
The next big breakthrough for trade liberalization and economic growth will come when we all figure out how to better help the developing world benefit from the global economy. When that occurs that will be awatershed for many American companies, workers and consumers. Take Africa as an example. There are many types of trade barriers. But one trade barrier that is often overlooked is the lack of infrastructure. There's no way for a landlocked country to compete on the world stage if it can't easily get its products to market. That's why I think the objectives of the DOHA development around are spot on. Greater trade liberalization around the world means more economic growth in the developed world and that will translate into increased demand for American products especially the products needed to build a nation's infrastructure.
Caterpillar supports the bilateral free trade agreements. In fact we will take freer trade whenever and wherever we can get it. But the danger is that we all could lose sight of what is the grand prize for trade liberalization namely the WTO DOHA Development Agenda. At the end of the day, US Trade Representative Robert Zoellick and President Bush will be graded not on what they accomplish bilaterally, but on what they accomplish multilaterally. Put another way bilateral agreements arethe pop quizzes of trade liberalization, while the DOHA Development Agenda is the final exam."
"Because textiles and apparel are one of the most protected manufacture sectors, it's been the apparel retailers that have been on the forefront of the trade debate. Retail is probably one of the most free trade industries around, and is probably one of the most cut-throat and competitive.
We would agree with the points that Regina made about the benefits of the FTAs, with the caveat that they have to meet a commercial viability test. This means that the rules under these FTAs have to reflect the way companies actually do business. This is where we have some real concerns on these FTAs and the rules of origin are at the heart of it. If they are too restrictive, the rules of origin can actually end up undermining the benefits that would otherwise accrue from an FTA.
To a large extent, the preference programs in the FTAs, and I think of NAFTA in particular, were based on an outmoded production model the cut and sew system , where components-the fabric-are cut in the U.S. and shipped down to the Caribbean Basin for assembly and then shipped back. This system has ended up being a real burden on these supplying countries in moving to the new production model we are now into, which might be called the full package or concept to market. Retailers now do not go out and buy the fabric, have it cut, shipped down to the Caribbean and have it shipped back. Instead, they go to a supplier and say, this is what ... this is the shirt I want, this is the fabric I want, this is the color I want, this is the price point I want, go out and do it and get what I want from wherever you can...
There's a lot of concern among retailers about China. They're saying 'we don't want to put all our eggs in the Chinese basket'. That's a huge risk for us, as evidenced by the port shut down in the end of 2002, the SARS issue, now all the trade cases, whether they be safeguard actions on apparel, or dumping cases on hard goods. So we want viable sourcing alternatives. We want to be able to develop Central America as a strong, competitive sewing base, which can develop the fabric and the yarn infrastructure that they need to be able to compete under this new production model. And unfortunately, large elements of the textile industry still don't really get it... What they end up doing by recreating very restrictive rules is essentially driving their customers to Asia, because we, their customers, can't operate under those restrictions."
"I think that the eye on the prize really is, how do we constructively, through all of these negotiations, move forward with the success of the WTO?
I'm especially curious about capacity building and all these things that are critical when we're dealing with developing countries. Is it easier to build capacity in a bilateral or regional environment, or is that an easier thing to accomplish in the larger multi-national context? Bunge is in the food business and from a food and a commodity perspective--where you've got to know where products are coming from and that they have been tested whether for bio-terrorism or sanitary or whatever purposes --capacity building in those countries where you have shipments of perishable goods is a big thing. "
"Financial flows are going to increase one way or the other. I think in talking to some of our economists prior to this meeting, it's sort of interesting to see these bilateral agreements cropping up. In some ways, it's the market making the demand. If DOHA can't do it, it's going to happen another way, incrementally, piece by piece.
We feel bilaterals are excellent, they give growth to clients. It will bring a lot, particularly in banking service sector in itself. Take what CAFTA will do. I was amazed to see how much the financial services sector gets out of this. Just page after page after page. I think that in itself, by allowing financial services firms to not only work with clients, but to be able to establish the opportunity and have the confidence to go into, say, Costa Rica or Guatemala will increase the flow of capital there. But more importantly, it will also help stabilize the flow for the long term."
Thomas J. Erickson, Vice President, Government Affairs, Bunge North America, Inc.
"I think that the eye on the prize really is, how do we constructively, through all of these negotiations, move forward with the success of the WTO?
I'm especially curious about capacity building and all these things that are critical when we're dealing with developing countries. Is it easier to build capacity in a bilateral or regional environment, or is that an easier thing to accomplish in the larger multi-national context? Bunge is in the food business and from a food and a commodity perspective--where you've got to know where products are coming from and that they have been tested whether for bio-terrorism or sanitary or whatever purposes --capacity building in those countries where you have shipments of perishable goods is a big thing."
Frank Kelley, Managing Director and Head Government Affairs (Americas), Deutsche Bank:
"Financial flows are going to increase one way or the other. I think in talking to some of our economists prior to this meeting, it's sort of interesting to see these bilateral agreements cropping up. In some ways, it's the market making the demand. If DOHA can't do it, it's going to happen another way, incrementally, piece by piece.
We feel bilaterals are excellent, they give growth to clients. It will bring a lot, particularly in banking service sector in itself. Take what CAFTA will do. I was amazed to see how much the financial services sector gets out of this. Just page after page after page. I think that in itself, by allowing financial services firms to not only work with clients, but to be able to establish the opportunity and have the confidence to go into, say, Costa Rica or Guatemala will increase the flow of capital there. But more importantly, it will also help stabilize the flow for the long term."
Jonathan M. Fee, Partner, Alston and Bird:
"From the government's perspective, a successful free trade agreement is probably one that increases the level of trade, increases the level of investment, and eventually increases the standard of living or the average real wage in the participating countries. But the same agreement can be judged wildly successful, or wildly unsuccessful, from the perspective of an industry that either directly benefits or loses business or jobs.
It is amazing to me that NAFTA is politically unpopular in each of the three NAFTA countries; yet an economist, interested in trade levels, investment, and efficiency in the way proximate markets work, would probably say that NAFTA is a smashing success. Therefore, depending on perception of what makes an agreement successful, one may or may not support the next free trade agreement, which could make a difference in this election year."
Sidebar: The Bottom Line: Up Or Down On Bi-Lateralism
Regina Vargo: "We live in a globalized economy, there's no turning back. I think the bilateral free trade agreements are an important tool for leveling the playing field for US companies."Thomas Crocker: "I hear concern about questions of uniformity and a patchwork quilt, which I think needs to be kept on the radar screen."
Ambassador Rubens Barbosa: "Free trade can only be seen as an engine in the developed world and the developing world if restrictions are eliminated or substantially reduced to benefit all countries."
William Lane: "We're going to take freer trade wherever and whenever we can get it, but it's important that we not lose sight of the grand prize."
Jonathan Fee: "Stay tuned; you have to watch the patchwork quilt of agreements closely, because you can get whipsawed or you can reap a windfall, depending on the terms covering your product or industry."
Erik Autor: "There's nothing inherently restrictive in bilateral agreements, but they don't necessarily guarantee increased trade and investment either."
Thomas J. Erickson: "The bi-laterals are very effective in focusing on tariff issues but they never get to the nettlesome problems we face with Brazil and other countries on subsidy issues."
Frank Kelly: "The net sum is that the bi-lateral approach is making great strides towards creating a better global free trade marketplace."
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