Periodically, the Center for American Progress publishes columns on various aspects of the global trade debate. “The Costs of Competitive Liberalization,” by Jake Colvin, is the second piece in “Trading Views,” our biweekly series designed to give a voice to the myriad progressive perspectives on the issue.
U.S. trade negotiators have their hands full these days, pursuing trade agreements from Panama to the Philippines in an attempt to advance a trade agenda based on “competitive liberalization.” This strategy, developed by U.S. Trade Representative Robert Zoellick, suggests that bilateral trade agreements with what he labeled “can-do” countries will stoke a desire for additional deals with the United States and create the building blocks for a more liberalized global trade network.
Such a focus on bilateral trade agreements with developing markets, which has become a hallmark of the Bush administration’s trade policy, raises serious concerns. Ambassador Zoellick’s decision to target smaller markets has proven uninspiring to the U.S. business community – generally the biggest supporter of open trade – and has provoked hostility from working Americans. It has not been worth the allocation of American resources, which can and should be put to better uses.
U.S. industry recognizes that the most significant gains from trade would come from successful global negotiations at the World Trade Organization (WTO). The U.S. government’s own analysis, through the International Trade Commission, suggests that the impact on the U.S. economy from the pending agreement with four Central American countries will be “minimal” (with a welfare gain of no more than $250 million per year), and offers similar assessments of other ongoing negotiations. Contrast these figures with a University of Michigan study, estimating that cutting global trade barriers by a third – which could be done at the WTO – would have a positive impact on U.S. economy of $177 billion per year. Negotiating a global agreement is no easy task, but sustained U.S. leadership could lead to significant benefits.
At the same time, while corporate heads are gritting their teeth and suggesting that any liberalization is good liberalization, much of the U.S. business world is quietly wondering why the United States is throwing resources at tiny developing markets when important de facto barriers persist in places like China, India and Brazil. For example, the United States conducted $853 million in total trade in 2003 with one of its newest FTA partners, Morocco, but loses an estimated $1.8 billion a year from piracy in China.
As business support lags, the proliferation of bilateral negotiations with developing countries is fueling an unnecessary backlash against trade. Rightly or wrongly, trade agreements have become lightening rods for criticism during recent economic downturn. Although a variety of pressures contribute to U.S. manufacturing, technology and textile sector job losses, these agreements involving asymmetric economies add to the uncertainty and fear of production shifts and job losses that often accompany trade. The agreements negotiated under President Bush also shy away from the types of labor and environmental protections President Clinton had pursued, which further diminishes public and Congressional support for trade. Pursuing smaller trade agreements under the guise of competitive liberalization is not only of little economic value, but it is actually harming the case for free trade.
Troublingly, competitive liberalization has come to dominate U.S. trade policy at the expense of a balanced approach that focuses adequately on other important priorities. The GAO estimates that 66 percent of USTR’s staff of 209 was utilized for six negotiations in 2003 and concluded that current bilateral negotiations “are already straining available resources.” Each completed bilateral agreement also adds to the institutional burden on a range of U.S. government agencies like the Customs Bureau, which must use staff to monitor and enforce new rules. With four active negotiations, a handful in the wings and an additional four that have been completed but not implemented, competitive liberalization has created significant current and future commitments for the U.S. government and a staff that is already stretched thin. More worrisome, the Bush administration proposed cutting USTR’s funding by six percent in its 2005 budget, which would further reduce the ability to enforce U.S. interests and priorities.
Competitive liberalization carries an enormous opportunity cost. Enforcement actions have dropped off significantly, as the Bush administration has filed an average of only three trade cases per year at the WTO compared to an average of eleven annually under President Clinton. And while Ambassador Zoellick deserves credit for reinvigorating the stalled WTO round of negotiations in an election year, USTR virtually ignored the talks for months, publicly sniping at Brazil in diplomatic forums and editorial pages for its negotiating positions and a “won’t do” attitude at the September 2003 Ministerial Meeting in Cancun.
This tremendous shift in resources has occurred without any compelling evidence that the theory behind competitive liberalization has proven valid. The U.S.-Chile Free Trade Agreement, for instance, has not created the impetus for more substantial liberalization through the Free Trade Area of the Americas (FTAA). In fact, Ambassador Zoellick’s stance towards Brazil in both the FTAA and the WTO negotiations seemingly has made it more difficult to complete broader trade deals.
Bilateral negotiations should be a part of U.S. trade strategy, but not the overwhelming focus they have become under the Bush administration. Ongoing negotiations with Thailand and Colombia – America’s 18th and 30th largest trading partners, respectively – provide two examples where market size, business interests and general foreign policy goals warrant stronger trade relations, and possibly trade agreements. However, to truly be effective, the United States must allocate its resources more sensibly and pursue monitoring and enforcement actions unilaterally and through the world trading system. Only then will the American trading system return to a balanced strategy that works for the best interests of its values, workers, and businesses.
Jake Colvin is an international economic consultant in Washington, Dc= The views expressed in this article are his own.
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