Advantages of Regional and Bilateral Approaches
THE ADVANTAGES OF REGIONAL AND BILATERAL APPROACHES
There are strong arguments in favor of the regional and bilater- al approaches. It is worth remembering that although global trade liberalization took place via the multilateral route in the twen- tieth century, liberalization happened through the bilateral route in the nineteenth century.The 1860 Cobden-Chevalier Treaty between the United Kingdom and France triggered a cascade effect among the governments of that era. Other governments, concerned with being left out of the benefits from that treaty, signed bilateral trade deals containing MFN clauses. The result was a reinforcing process of competitive liberalization, as each country secured preferential access with the major trading states.That process pro- vided the foundation for the open global economy in the late 1800s. A case can be made that a similar process is under way today, as the United States, Japan, and China try to catch up to the Euro- pean Union’s plethora of regional and bilateral trade accords.
One way the current era differs from the nineteenth century is the absence of an MFN clause in modern preferential trade agree- ments. That slows but does not stop the current process of liber- alization. The political economy of trade diversion still generates competitive incentives for a growth in FTAs. Producer groups in the United States that lose out because of trade diversion to other countries participating in FTAs will actively lobby for the Unit- ed States to sign additional FTAs—which can be negotiated more quickly than a WTO round. For a concrete example, Cana- da implemented an FTA with Costa Rica in 2003, obtaining from Costa Rica an expanding zero-tariff quota that permits an increasing number of frozen french fries to enter Costa Rica from Canada duty-free. At the same time, pre-CAFTA U.S. tariffs on Costa Rican frozen fries remained at the WTO bound rate of 40 percent. That led U.S. potato growers and processors to advocate forcefully for the CAFTA negotiations as a way to restore their competitive balance vis-à-vis Canada.
Bilateral and regional trade agreements also afford the Unit- ed States much greater bargaining power than the WTO process.
U.S. Trade Strategy: Free Versus Fair
Within the WTO, the European Union possesses comparable eco- nomic size and bargaining power. The norm of consensus deci- sion-making acts as another constraint on U.S. influence.The countries targeted for FTAs with the United States are all much smaller. For these countries, guaranteeing preferential access to the American market is a significant achievement. They are therefore more willing to accede to American requests during the negotiation process. It gives the United States an opportunity to expand trade beyond goods to include services and investment—a process that would prove more difficult in the WTO. For example, recent FTAs carry more stringent protections for IPR than currently exist in the TRIPS regime.
There are additional political reasons to pursue the regional and bilateral track.The power asymmetry vis-à-vis candidate FTA coun- tries allows the United States to pursue noneconomic aims as well. For example, recent FTAs have included arrangements or accords to enforce labor and environmental standards, promote anticor- ruption policies, and encourage democratization. Some critics have argued that these arrangements are merely window dressing, but academic studies suggest that the agreements can have an appre- ciable impact on the policy choices of our FTA partners. Noneco- nomic aspects of FTAs have also made it easier to ensure congressional ratification. At the same time, the prospect of a pref- erential trading arrangement with the United States is a power- ful reward for loyal allies.
The aforementioned significance of regulation as a residual barrier to trade provides another incentive for regional and bilat- eral trade diplomacy. For the most part, the European Union prefers more stringent regulatory standards when it comes to pro- duction processes.This stringency has been reflected in trade issues ranging from GM foods to data privacy. Each preferential trading agreement the European Union signs is another means through which it can expand its regulatory bloc. One way for the United States to ensure that its own regulatory standards remain viable and visible in the global economy is to expand its number of FTA partners.
White Paper D: The Multiple Tracks of Trade Diplomacy