Trade Scene: To FTA or not to FTA

Trade Scene: To FTA or not to FTA

WASHINGTON -- It's time again to check the score card on "competitive liberalization," the Bush administration's strategy to negotiate freer, if not free, trade pacts, bilaterally, regionally or multilaterally, expecting that the trade pacts will beget more trade pacts.

Over the past half-year or so, most of the competitive liberalization has been on the bilateral front. The administration concluded bilateral free trade agreements (FTAs) with nine countries -- Australia, Morocco, Bahrain, the five Central American Common Market countries of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, and the Dominican Republic.

Moreover, FTA negotiations are underway with ten other nations -- Thailand, Panama, Colombia, Ecuador, Peru and the five-member Southern Africa Customs Union (Botswana, Lesotho, Namibia, South Africa and Swaziland).

Though the negotiation goals are basically the same -- duty-free trade, the opening of services markets, strong intellectual property protection, non-discriminatory investment rules, etc. -- the outlook differs for some of these trade deals.

Mixed messages, spectre of change looms

For an FTA to take force requires an OK from the U.S. Congress, and it is sending mixed messages FTA by FTA, witness the Australian, Moroccan and Central American agreements, which have all been signed.

FTAs still in negotiation face the uncertainty of a possible change in the U.S. government early next year, given the November elections. Adding to the uncertainty, the president's "fast track" negotiating authority, which limits Congress to up-or-down votes on trade agreements, may be allowed to expire next year.

By far, the brightest prospect for congressional approval this year is the U.S.-Australian FTA. Indeed, a rush is on in Congress to vote this agreement by July 23, just before Congress starts its summer recess. The Australian FTA apparently has more than enough votes for passage; it's a matter of finding floor time for the vote.

There seems almost as good a chance that Congress will clear the Moroccan FTA by the end of next week, but the technical work on it has been lagging. If there is no action this month, Congress might take up the Moroccan pact in November, if, as expected, it holds a post- election or "lame duck" session.

But if the Democrats win the elections, the Moroccan FTA might just be put over to next year. Sen. John Kerry, the Democrats' presumptive presidential nominee, says he will review all FTAs. He has already vowed to renegotiate the agreement with Central America, particularly to toughen its labor and environmental provisions.

Kerry aside, the Central American FTA lacks enough votes for passage in this Congress, even its backers admit. U.S. union opposition to the pact is fierce; the pact has also drawn the ire of the sugar and textile lobbies.

The only other deal with a seeming chance of enactment this year is the one with Bahrain but only if Congress convenes a lame duck session. But, again, if Kerry wins the election, it probably would be put over to 2005.

Of the FTAs under negotiation, a pact with Panama is likely the first to be concluded. The Thai negotiation, which has just begun, may take the longest, officials estimate. By early next year, agreements with Colombia, Ecuador and Peru are expected to be completed. So, too, the negotiation with the Southern Africa Customs Union members, though talks with these countries are running behind schedule.

Possible targets for more trade deals

Who are the most likely candidates for future FTA negotiations? If President Bush is re-elected, they almost surely will include some Middle East-North African countries, among them Tunisia and the United Arab Emirates. This would be in keeping with Bush's proposed Middle East Free Trade Area.

The Bush administration is even encouraging former Soviet states, such as Kazakhstan, to consider FTAs. Malaysia, the Philippines and Indonesia are other possible candidates as are Sri Lanka and Bolivia. New Zealand has been knocking on the free trade door but so far to no avail.

U.S. bilateralism is not without its critics. For one thing, they say, it embraces few major trading partners. It' a "low risk, low rewards" policy, says Jeffrey Schott, a senior economist at the Washington-based Institute for International Economics.

Indeed, U.S. merchandise exports to the 19 countries with which FTAs have just been negotiated or are under negotiation totaled $46 billion last year, only about 6 percent of total U.S. exports world-wide. Even if you add Chile and Singapore -- the two FTAs that were implemented Jan. 1 -- the FTAs' share of the U.S. export market is still less than 9 percent.

Help or hindrance for Doha Round?

The FTAs are criticized, too, for distracting negotiators from the World Trade Organization's much more expansive Doha Round, at which 148 countries are working to liberalize global trade.

Moreover, FTAs are accused of often diverting rather than creating trade, as less efficient producers take advantage of their lower tariffs, edging out more efficient competitors.

Says Renato Ruggiero, a former WTO director general: the proliferation of FTA's around the world -- almost 200 are in effect or under negotiation -- may lead to the "fragmentation" of the world trading system.

And what about the "competitive liberalization" tenet that if enough bilateral agreements are signed, it will help energize the Doha Round and the Free Trade Area of the Americas negotiations?

At last look, the FTAA remains stalled, as the United States and Brazil have failed to resolve their differences over negotiating goals and ground rules.

As for the WTO's Doha Round, the U.S. and other nations are struggling to establish a series of "frameworks" for the round's negotiation, something that was supposed to have been done last September. They are due to meet July 27-29 in Geneva.

Would a few more U.S. FTAs help?

Richard Lawrence was a long-time trade reporter for The Journal of Commerce.