EVENTS

Date:	Monday, April 3, 2006
Time:	11:00 AM -- 2:00 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

April 2006

The Future of U.S. Trade Policy

With a successful, large-scale result from the World Trade Organization’s (WTO) Doha round of trade negotiations increasingly unlikely, many commentators are arguing that the time has come to reassess U.S. trade policy goals and the means for reaching those goals. Is the multilateral negotiating system--with a WTO consisting of almost 150 nations and ruled by consensus--doomed to stalemate? If so, are bilateral and regional trade agreements adequate alternatives? What criteria and terms should be adopted for negotiating such agreements in the future? In an April 3 luncheon address at AEI, House Ways and Means Committee chairman Bill Thomas (R-Calif.) shared his views on future U.S. trade policy options. Preceding Chairman Thomas, a panel of trade analysts framed the issues and identified major challenges in the trade policy arena.

James K. Glassman
AEI

Mr. Glassman focused his discussion of the Doha round on trade in developing nations. He argued that the tariffs and subsidies that isolate developing nations are present not just in developed nations, but also in developing nations as well. Trade liberalization from agriculture alone would produce total economic gains for the global economy of $248 billion, but of that gain $142 billion would go to developing countries. Further, of that $142 billion, only $31 billion would come from developed nations bringing down their trade barriers, while the remaining $111 billion would come from poor countries removing their own barriers, and thus benefiting their own citizens through lower prices and more abundant goods.

So far, the Doha round has gone poorly; in fact, it is barely alive. This is especially evident given that at both Cancun and Hong Kong, developed countries were unwilling to lower barriers that protect domestic agriculture, and developing countries refused to do anything at all unless those barriers came down. Thus, the Doha round has been, and still is, at an impasse. Will this stalemate lead to a stalemate for the WTO in general? It is also relevant to this discussion to ask if FTAs--whether bilateral or regional--are good alternatives or actually counterproductive. Finally, there is the question of whether there is any way to rescue the Doha round.

Throughout the developed world, notably and alarmingly in the United States, there is a resurgence of protectionism. Moreover, worse than an economic phenomenon, this is a cultural and social matter. Its roots are in fears of globalization--especially fears of the globalized future--and has resulted in a new kind of nativism. The fact that the House of Representatives could pass the Central American Free Trade Agreement (CAFTA) by just one vote is one symptom of this rising tide. Given that trade promotion authority and fast track trade negotiation will expire next year, the relevant question should be, what are the chances in this climate for its renewal?

Jeffrey Schott
Institute for International Economics

Mr. Schott emphasized that for the last two decades, U.S. trade policy has been three-dimensional in the sense that it operates on bilateral, regional, and multilateral levels. In order for the current policy to be most successful and effective, those three levels have to be mutually reinforcing. In addition to experiencing economic gains from moving forward on trade negotiations, such negotiations also contribute to foreign policy objectives, and in an era of globalization, one cannot separate economics from foreign policy. This effort to tie trade policy to broader foreign policy goals has certainly been an important part of the Bush administration’s strategy. Further, there are systemic benefits from having a viable multilateral trading system.

What is most important is that a rules-based system imposes important disciplines on our own policies and prevents some of the excessive inclinations of domestic politics from resulting in self-defeating policies with other countries. Having an effective multilateral rules-based system has been very important for the United States, particularly in how it acts as a safeguard against abuse of its trading partners. The Doha round is in trouble due to the difficulty in making decisions to reform long-standing trade barriers, which have been immune to reform in previous rounds of trade negotiations. What remains for the major players are the most politically sensitive issues. Therefore, it is going to require a big counterweight payoff to get domestic politics to support reforming these practices. Mr. Schott believes it can be done, but probably not this year; there is simply not enough time, and negotiators will miss the deadlines.

In addition, Mr. Schott explained that the reauthorization of trade promotion authority will be needed in order for the United States to carry on an effective trade policy in the future. Also, the United States will have to carry on other bilateral and regional ventures. In East Asia, for example, a proactive response to the competitive liberalization that we see among East Asian countries, especially China, will be needed. Finally, Mr. Schott explained that he is still confident that U.S. trade representative Rob Portman can craft a substantive package of trade agreements and that he can develop, through his extensive consultations in the Congress, a broader coalition in support of an open U.S. trade policy.

Claude Barfield
AEI

The United States has always had a multidimensional trade policy, and with the Bush administration, there has been an inherited priority for the multilateral trading system. Over the past five years, the Bush administration has made formal two other policies that had been adumbrated by earlier administrations. The first policy is identified with Mr. Zoellick, and will continue with the so-called competitive liberalization. The second policy was the formal announcement and recognition that trade policy was a part of a larger set of U.S. diplomatic, security, and political goals. Mr. Barfield believes that these two attributes were the most important and novel characteristics of the Bush administration’s trade policy.

Mr. Barfield went on to explain how it is very easy for the United States to attract small markets into bilateral agreements. However, once a country attempts to go beyond the bilateral level toward a regional agreement, the country encounters many of the same political and economic barriers found in the WTO Doha round. It is very difficult to go from bilateral agreements to regional agreements to global free trade.

Mr. Barfield is skeptical of a grand result from the Doha round, given the current circumstances. He explained that in the long term there will be major structural and political problems. Furthermore, the major barrier to an agreement in agriculture is the European Union, whose agricultural policies will be entrenched for years to come and not up for negotiation.
 
In regard to U.S. efforts at engaging East Asia as a region, one must recognize that the Asia-Pacific Economic Cooperation (APEC) is moribund. At the same time, the Association of Southeast Asian Nations (ASEAN) +3 organization is taking over most, if not all, of the functions of APEC. Mr. Barfield argues that with the rise of East Asian regionalism and, more importantly, the increasing influence of China concerning not only economic issues, but political, security, and diplomatic issues as well, the United States will be forced to make a decision. Is it necessary or even possible to revive APEC, or should the United States move to join the ASEAN +3? Mr. Barfield believes that the Bush administration should make it clear that the United States wants to be involved in negotiations if the East Asian bilaterals precipitate a free trade agreement that begins to encompass the East Asian region. He argues that if the U.S.-Korea FTA succeeds, there will likely be a domino effect, and trade diplomacy will begin to change rapidly over the next few years in the East Asian region.

Lael Brainard
Brookings Institution

In terms of the overall Doha negotiations, what is striking is that over the last few years there has been a seismic shift in the competitive landscape facing the United States. India has become a world-class competitor in some of the highest tech services, and increasingly all of the countries in and around China have arranged their markets and their productive patterns around China and not the United States. What is remarkable is that rather than setting the framework for this new competitive landscape, the U.S. government is barely keeping up with it.

In reference to the recent passage of CAFTA, Ms. Brainard noted that it is simply not sustainable to conduct trade policy by one vote margins. She argued that there needs to be a broader political consensus that trade is in the interest of a broad set of Americans and not just special interests. In the context of the Doha round, the United States needs to be working in a more creative and pragmatic way.

In terms of the bilateral agenda, the last five years has seen several agreements with individual countries. However, none of these single-country agreements has led to broader regional or multilateral liberalization. The United States must be more aggressive and ambitious in terms of how it tries to navigate the intermediary space between individual-country deals and the multilateral system. The United States is simply not competing in the regional kind of agreements that are being developed. The debate has to be broader, and it cannot simply be about should we do this trade agreement or that trade agreement, but more importantly about how to position the country to compete in the years ahead.

Keynote Address: The Doha “Merry-Go” Round--When the Music Stops,
Will the United States Be Up or Down?

The Honorable Bill Thomas
U.S. House of Representatives

The 2006 election could prove to be pivotal in terms of whether or not the United States makes progress on free trade. Moreover, given recent events, it is likely that the anti-free trade faction will emerge victorious. The arguments over free trade, unfortunately, have been and will likely be based on emotion and “our way of life.” This is evident in how Congress dealt with the debate over the offer by Dubai Ports World to operate six U.S. ports and is dealing with the debate over immigration. Currently, nothing trade-related will pass the Congress unless it is by the smallest of margins, and the timing is bad to discuss renewal of trade promotion authority. Indeed, what this Congress does over the next three months will affect the fate of globalization for years to come.

There is not going to be any major breakthroughs in the Doha round, with the European Union being one of the greatest obstacles. Clearly, the United States and the European Union have irreconcilable differences on trade, and there comes a point when the United States will simply have to part ways with Brussels. It is unlikely that Europe will alter its obstinacy to trade liberalization anytime in the near future.

Despite objections to the use of bilateral agreements, given that they are one of the few tools remaining, the United States should employ them to its benefit. The United States should reserve best access to U.S. markets to those countries that offer the best access for U.S. goods in their own domestic markets. To least developing countries, the United States should offer duty-free and quota-free treatment. In return, the United States should expect the trading partner to comply with WTO standards, particularly the rules concerning intellectual property rights and sanitary and phytosanitary standards.

In negotiating with other countries, the United States can point to the agreements from Chile onwards as world-class agreements.  Finally, there are prospects that bilateral agreements can lead to regional ones. The United States already has an agreement with Singapore, and if it can come to an agreement with Malaysia and Korea, which have approached the United States, this could provide the basis for a model of a regional structure. Also, the free trade agreement with Bahrain and positive negotiations with Oman and the United Arab Emirates have motivated Saudi Arabia to consider trade liberalization.

During the question and answer section, Mr. Thomas noted that the immigration problem will only be resolved once immigrants decide to move to America because they want to and not because they have to. One of the ends of trade liberalization is to enable countries to develop profitable industries that will provide adequate employment for their people. Fences and stricter border patrol will not solve the immigration problem; what will ultimately help is spurring economic growth in neighboring countries.

AEI intern Liang Zhang and AEI staff assistant Dan Geary prepared this summary.