Is Bilateralism the Future of US Trade Policy? Should it be?By Kimberly Ann Elliott // Wednesday, January 4, 2017
WASHINGTON – January 4, 2017: In the wake of recent stumbles in multilateral and regional trade negotiations, would the United States do better by shifting to a bilateral focus? The Doha Round of multilateral trade negotiations fell into a coma in 2008 and never revived. The Trans-Pacific Partnership (TPP) was completed and signed after years of difficult negotiation among the 12 parties. But ratification by the US Congress proved politically impossible in an election year where trade in general, and particular issues in the TPP, became a lightning rod for discontent in both major political parties. President-elect Trump and key advisers are among those suggesting that the United States would get better results by negotiating bilaterally.
As the world’s largest economy and second biggest global trader, there is no question that the US trade negotiators have substantial leverage. As I noted in a recent blog post for the Center for Global Development, the US economy is 44 times larger than that of the average country with which it has a free trade agreement and more than 200 times larger than half of them.
American negotiators are already using their leverage to get most of what they want in trade agreements. For example, despite the criticisms, one recent analysis suggests that the United States “wrote the TPP.” Examination of the text of all the free trade agreements (FTAs) negotiated between 1995 and 2015 by TPP parties found that 45 percent of the text of previous US FTAs “can be found verbatim in the TPP.” That is roughly 50 percent more than the average for any other TPP party. Moreover, the overlap with previous FTAs is even higher in areas of “greatest importance to US political and economic interests,” including services and investment (p. 4 of the article at the link).
American negotiating leverage is nevertheless finite and bilateral negotiations can entail high transactions costs. To achieve an outcome comparable to the TPP with a bilateral strategy would take far more negotiating resources. More important, it would exacerbate the “spaghetti bowl effect” that comes from having a number of separate and potentially competing and inconsistent trade agreements. The costs to firms of figuring out different tariff schedules and rules of origin could well offset the benefits of tariff reduction. A hub and spoke and approach to trade agreements is also inconsistent with the reality of global value chains that move products through multiple destinations before shipping the assembled good to its final destination.
The benefits of a bilateral strategy depend on US leverage in particular situations. Indeed, where American leverage is the greatest is also likely to be where the benefits are slimmest. Smaller, more vulnerable countries often find themselves in something akin to a take or leave it situation in negotiations with the United States. But the economic benefits for American firms in those situations will also be small. And even smaller, clearly weaker countries will have little incentive to negotiate a trade agreement if they trade little with the United States and are therefore unwilling to pay a high price to get one.
In negotiations with larger, richer countries with more lucrative markets, leverage will not be one-sided and difficult compromises will be necessary to get a deal. The thin results produced after several years of negotiation on the Transatlantic Trade and Investment Partnership are testament to the difficulties inherent in such negotiations.
Finally, the president’s leverage in trade negotiations is constrained by Congress’ constitutional role in regulating trade. Over the years, Congress has delegated much authority over trade policy to the executive branch. But Congress must still approve those agreements and, in the case of trade agreements, pass legislation to implement any changes to US laws required by the terms of those agreements.
For example, certain language relating to labor standards has become a prerequisite for getting enough votes in Congress to pass trade agreements. But if a trading partner puts a lower priority on those provisions, US negotiators will have to give something in order to get what they need on labor. This constraint is as true for bilateral trade negotiations as it is for those taking place in a regional or multilateral context.
In sum, focusing on bilateral trade negotiations is unlikely to produce larger net benefits for the United States, or the world. Moreover, the premise that bilateral negotiations would deliver better results is often based on a fundamentally flawed assumption that trade negotiations are zero sum—meaning that one party wins and the other loses.
The mercantilist approach to trade negotiations hangs on because it is an easier sell politically. But it is not the way for the US economy to become more competitive globally and more prosperous at home.
Kimberly Ann Elliott is a Senior Fellow with the Center for Global Development and the author or co-author of numerous books and articles on trade policy and globalization, economic sanctions, and food security. Previously, she was with the Peterson Institute for International Economics. The views expressed here are her own.
© Washington International Trade Association.
All rights reserved. NextGenTrade™ material may not be reproduced or distributed, in whole or in part, without prior written permission of WITA. However, reproduction and distribution, in whole or in part, by non-profit, research or educational institutions for their own use is permitted if proper credit is given, with full citation, and copyright is acknowledged. Any other reproduction or distribution, in whatever form and by whatever media, is expressly prohibited without the prior written consent of WITA. For further information, please contact:DAnez@wita.org.
Subscribe to: Posts (Atom)