Politics, Business & Culture in the Americas

They waste energy and political capital.

[i] Do regional trade agreements weaken the WTO and the global push for free trade? [b]Yes[/b][/i]

I have supported, and continue to support, all bilateral and regional deals.  But Latin America, the United States and the rest of the world would benefit far more if the time, energy, human resources, and  all-too-limited political capital being invested in these deals were devoted instead to achieving a much-needed global deal on trade.
 
While such a deal remains stalled, regional and bilateral trade arrangements continue to proliferate in Latin America. The admission of Venezuela to Mercosur is only the latest example.
 
In addition to the now five-member Mercosur (Argentina, Brazil, Uruguay, Paraguay, and Venezuela), Mexico, Peru, Colombia, and Chile have formed a new Pacific Alliance. At the same time, Mexico is a party, with the U.S. and Canada, to the North American Free Trade Agreement (NAFTA). And Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica—together with the Dominican Republic—are joined to the U.S. in the Central American Free Trade Agreement (CAFTA-DR).
 
Bilaterally, the number of agreements is almost too many to count. Chile claims to have more regional and bilateral trade agreements than any other country (59). Many of its neighbors are trying to catch up. Peru, for example, signed an agreement with Mexico that took effect in February and is now seeking another agreement with Indonesia.
 
The potential reach of this regionalism is expanding.  Mexico has been invited to join with other countries on the Pacific Rim in the negotiations on a proposed new Trans-Pacific Partnership (TPP). Other such opportunities are emerging. Indonesia has urged the ASEAN countries of Southeast Asia to become an observer to the new Pacific Alliance as a first step to forging closer ties.  Meanwhile, trade relations with China, bilateral and otherwise, loom over evolving Latin trade and investment strategies.
 
While I was in the U.S. Congress, I supported the Caribbean Basin Initiative, voted for NAFTA, and backed the creation of a Free Trade Area of the Americas (FTAA). I have long felt that bilateral and regional trade arrangements can, as the jargon goes, be “building blocks” for broader global successes in trade. They can be effective proving grounds for addressing issues that are not yet ready for multilateral agreement. Chapter Eleven of NAFTA, which allows governments to be sued by private companies over legislation that potentially harms the rights of investors, is a good example. There are many more.
 
But now I worry that the trend of Latin American and other countries to construct and cultivate bilateral and regional arrangements is increasingly making those arrangements “stumbling blocks” to global success.  The time, energy and political capital being invested in the flurry of negotiation and approval of bilateral and regional deals distracts  from the greater good of concluding the long-overdue global deal among the more than 150 member countries of the World Trade Organization (WTO). Moreover, the separate arrangements, procedures and exceptions contained in each of these agreements are complicating the agenda for harmonizing trade codes in any future global trade agreement.
 
The frustration over the prolonged impasse in the Doha Round of multilateral trade negotiations under the auspices of the WTO is certainly understandable. Countries in Latin America and elsewhere have shifted their focus to bilateral and regional deals because they believe that is the best way to achieve results. But this becomes a self-fulfilling prophecy.
 
The concentration on short-term individual gains comes at a cost.  A failure to focus multilaterally on trade means that the benefits in terms of efficiencies of scale, more rational flow of investment and comparative advantages that come from broadly reducing barriers to trade are lost.
 
The more countries that are involved in a trade negotiation, the more opportunities there are for those countries to make mutual concessions that lower trade barriers for different kinds of goods and services. These concessions can then be applied to all trade of those goods and services among all of the countries participating in the negotiations.
 
Some trade policy reforms, such as reducing distortions in agricultural trade, can only be achieved multilaterally. Does anyone really suppose the U.S. will make any real concessions to Latin America on agricultural subsidies in the absence of an agreement by the European Union to make cuts in its own agricultural subsidies? Negotiations over trade remedies and the global proliferation of renewable energy subsidies are other examples of issues best handled multilaterally.
 
Like many of the countries of Latin America, the U.S. is also focusing its efforts almost exclusively on achieving bilateral and regional solutions in trade.  Washington has concluded bilateral deals with Chile, Peru, Colombia, and Panama—as well as NAFTA and CAFTA-DR. And it is leading the charge on negotiating the Trans-
 
Pacific Partnership. Access to the U.S. market—among other large markets—is the prospect that has largely driven broader trade deals under the WTO. Take that out, and the incentives for countries to make concessions are lessened.
 
The U.S. and the rest of the hemisphere should return to the focus on global trade agreements. The TPP, for example, is envisaged as a new model trade agreement for the twenty-first century. But it should be negotiated and framed as a plurilateral agreement within the bounds of the WTO treaty, with all the advantages of WTO dispute settlement and with the potential for possible expansion later to include all WTO members.
 
As currently envisioned and negotiated, the TPP will create unnecessary hurdles for member countries domestically and establish a geopolitical momentum that runs counter to the very founding principles of the General Agreement on Trade and Tariffs (GATT) and later the WTO.
 
As a condition even of joining in the TPP negotiations, Japan must challenge entrenched domestic agricultural interests—a high political cost for what arguably may not be an equivalent economic payoff from participating in the TPP. And the question of whether or not to invite China to participate in the TPP negotiations raises geopolitical issues that have little to do with the widgets of trade. To the Chinese, the TPP seems to be aimed at containing and isolating China. Neither of these hurdles would exist if the TPP negotiations were conducted within the WTO, because Japan and China are already members of the WTO.
 
Similar hurdles are posed by the knotty net of bilateral and regional arrangements that is emerging in Latin America. These deals have helped to deepen and broaden free trade—across sectors and countries—absent progress in global trade talks. But there’s only so much attention and energy left for expanding free trade, and we already have a framework for doing so: the WTO.
 
The more attention individual countries devote to their own regional or individual trade agendas, the more likely it will be that the momentum—and the potential—of the WTO dissipates.
 

 

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