Losing Ground: the United States, Free Trade Areas, and the World Trade Organization

07/01/2018

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Guy Erb and Scott Sommers

WASHINGTON, DC – April, 2018  Over the past twenty-five years US production and export of goods and services have flourished while technological innovation and competition from imports have reduced employment in some US manufacturing industries. In response to the undoubted problems of some industries and to concerns about the US deficit in traded goods, the Trump Administration withdrew from the Trans Pacific Partnership (TPP); repeatedly threatened to withdraw from the North American Free Trade Area (NAFTA); stated its strong preference for bilateral trade agreements; highlighted a long-standing US criticism of the dispute settlement procedures of the World Trade Organization (WTO); and announced tariff increases to protect US producers of washing machines, solar panels, aluminum, and steel. Taken together, those actions threaten a reversal of the trade policies that the United States has pursued for over eighty years. The likely results would be a weaker US economy and reduced US access to global markets. The responsibility for the retrenchment doesn’t fall entirely on today’s policy makers. For many years the US Congress, federal and state governments, and corporations have failed to provide adequate support and retraining to the US workers and communities adversely affected by technology and trade. We should not be surprised by grass roots hostility to international trade. Even as doubts grew about the benefits of international trade, the global framework for trade was changing. Since 1994 the United States and other members of the WTO have failed to conclude a global trade negotiation. Not coincidentally, many nations turned to free trade areas (FTAs). After the signature of the NAFTA in 1992, the United States successfully signed and implemented another twelve FTAs by 2011. But the United States lagged behind its major trading partners and other competitors as they rushed to establish networks of FTAs. The United States has not signed and implemented an FTA since 2007. In contrast, over the last decade, the European Union signed and implemented eighteen FTAs and now has a total of thirty-five with sixty-six nations, not including the recent EU-Japan FTA that awaits ratification and the EU-Mexico FTA that was announced in April of this year. China and Japan have each signed and implemented ten FTAs since 2008; Canada signed and implemented ten FTAs and Mexico five.  Australia has brought six FTAs into force since 2008 and in the past year signed three whose implementation is pending. And in 2017 the eleven nations remaining in the TPP signed its successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The multilateral trade system that began as a reaction to the protectionism of the Great Depression and gathered momentum after WWII has been overtaken by the proliferation of FTAs. But rather than advocate a return to multilateralism, US officials have recently concentrated on correcting what they see as “unfair” trade practices and on criticism of the way that the WTO has handled trade disputes. That criticism has overshadowed constructive U.S. approaches to the WTO and raised fears that the United States intends to harm or even destroy it.   The Administration’s preference for bilateral, not multilateral, trade agreements has also contributed to concerns about the direction of US trade policy. Since 2017 the United States has managed to conclude one bilateral negotiation, a revision of its FTA with Korea. Efforts to entice other trading partners into bilateral negotiations have not succeeded to date. Even if our major trading partners were willing to negotiate bilaterally with the United States, the negotiation and implementation of trade agreements is very time consuming. Since the agreement with Israel in 1985 on the first US FTA, it has taken an average of three years to negotiate and obtain Congressional approval of an FTA. The last four US FTAs required an average of over six years for negotiation and implementation by the Congress. (That history has clear implications for the current renegotiation of the NAFTA.)   In the short- or even medium-term, the pursuit of new bilateral agreements cannot offset our failure to keep pace with the global trend toward FTAs. US exporters now face hurdles in many markets in which competitors that are members of an FTA enjoy preferential market access and favorable rules of origin, safety standards, and regulations. A US refusal to engage in constructive reform of the WTO will weaken that institution at a time when US exporters need the WTO’s global rules more than ever to respond to preferential FTAs that exclude the United States. Pursuit of new bilateral agreements should take a back seat to serious efforts to resolve the quarrels over the WTO’s dispute settlement system. Similarly, current US demands for “voluntary” export reductions and changes in industrial policies—now underway with exporters of steel and aluminum and with China—are not an alternative to hard work and horse trading by US trade negotiators to strengthen the WTO.

Guy Erb is Managing Director of the Berkley Research Group. Mr. Erb has experience in financial advisory services, investment banking, commercial banking, money services businesses, and expert services, including testimony. He also has held senior positions in government and international organizations.

Scott Sommers is an Associate in the Washington, DC office of the Berkeley Research Group LLC.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates

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