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They waste energy and political capital. BY JAMES BACCHUS Do regional trade agreements weaken the WTO and the global push for free trade? Yes I have supported, and continue to support, all bilateral and regional deals. But Latin America, the United States and the rest of the world would benefit far more if the time, energy, human resources, and all-too-limited political capital being invested in these deals were devoted instead to achieving a much-needed global deal on trade. While such a deal remains stalled, regional and bilateral trade arrangements continue to proliferate in Latin America. The admission of Venezuela to Mercosur is only the latest example. In addition to the now five-member Mercosur (Argentina, Brazil, Uruguay, Paraguay, and Venezuela), Mexico, Peru, Colombia, and Chile have formed a new Pacific Alliance. At the same time, Mexico is a party, with the U.S. and Canada, to the North American Free Trade Agreement (NAFTA). And Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica—together with the Dominican Republic—are joined to the U.S. in the Central American Free Trade Agreement (CAFTA-DR). Bilaterally, the number of agreements is almost too many to count. Chile claims to have more regional and bilateral trade agreements than any other country (59). Many of its neighbors are trying to catch up. Peru, for example, signed an agreement with Mexico that took effect in February and is now seeking another agreement with Indonesia. The potential reach of this regionalism is expanding. Mexico has been invited to join with other countries on the Pacific Rim in the negotiations on a proposed new Trans-Pacific Partnership (TPP). Other such opportunities are emerging. Indonesia has urged the ASEAN countries of Southeast Asia to become an observer to the new Pacific Alliance as a first step to forging closer ties. Meanwhile, trade relations with China, bilateral and otherwise, loom over evolving Latin trade and investment strategies. While I was in the U.S. Congress, I supported the Caribbean Basin Initiative, voted for NAFTA, and backed the creation of a Free Trade Area of the Americas (FTAA). I have long felt that bilateral and regional trade arrangements can, as the jargon goes, be “building blocks” for broader global successes in trade. They can be effective proving grounds for addressing issues that are not yet ready for multilateral agreement. Chapter Eleven of NAFTA, which allows governments to be sued by private companies over legislation that potentially harms the rights of investors, is a good example. There are many more. But now I worry that the trend of Latin American and other countries to construct and cultivate bilateral and regional arrangements is increasingly making those arrangements “stumbling blocks” to global success. The time, energy and political capital being invested in the flurry of negotiation and approval of bilateral and regional deals distracts from the greater good of concluding the long-overdue global deal among the more than 150 member countries of the World Trade Organization (WTO). Moreover, the separate arrangements, procedures and exceptions contained in each of these agreements are complicating the agenda for harmonizing trade codes in any future global trade agreement. The frustration over the prolonged impasse in the Doha Round of multilateral trade negotiations under the auspices of the WTO is certainly understandable. Countries in Latin America and elsewhere have shifted their focus to bilateral and regional deals because they believe that is the best way to achieve results. But this becomes a self-fulfilling prophecy. The concentration on short-term individual gains comes at a cost. A failure to focus multilaterally on trade means that the benefits in terms of efficiencies of scale, more rational flow of investment and comparative advantages that come from broadly reducing barriers to trade are lost. The more countries that are involved in a trade negotiation, the more opportunities there are for those countries to make mutual concessions that lower trade barriers for different kinds of goods and services. These concessions can then be applied to all trade of those goods and services among all of the countries participating in the negotiations. Some trade policy reforms, such as reducing distortions in agricultural trade, can only be achieved multilaterally. Does anyone really suppose the U.S. will make any real concessions to Latin America on agricultural subsidies in the absence of an agreement by the European Union to make cuts in its own agricultural subsidies? Negotiations over trade remedies and the global proliferation of renewable energy subsidies are other examples of issues best handled multilaterally. Like many of the countries of Latin America, the U.S. is also focusing its efforts almost exclusively on achieving bilateral and regional solutions in trade. Washington has concluded bilateral deals with Chile, Peru, Colombia, and Panama—as well as NAFTA and CAFTA-DR. And it is leading the charge on negotiating the Trans- Pacific Partnership. Access to the U.S. market—among other large markets—is the prospect that has largely driven broader trade deals under the WTO. Take that out, and the incentives for countries to make concessions are lessened. The U.S. and the rest of the hemisphere should return to the focus on global trade agreements. The TPP, for example, is envisaged as a new model trade agreement for the twenty-first century. But it should be negotiated and framed as a plurilateral agreement within the bounds of the WTO treaty, with all the advantages of WTO dispute settlement and with the potential for possible expansion later to include all WTO members. As currently envisioned and negotiated, the TPP will create unnecessary hurdles for member countries domestically and establish a geopolitical momentum that runs counter to the very founding principles of the General Agreement on Trade and Tariffs (GATT) and later the WTO. As a condition even of joining in the TPP negotiations, Japan must challenge entrenched domestic agricultural interests—a high political cost for what arguably may not be an equivalent economic payoff from participating in the TPP. And the question of whether or not to invite China to participate in the TPP negotiations raises geopolitical issues that have little to do with the widgets of trade. To the Chinese, the TPP seems to be aimed at containing and isolating China. Neither of these hurdles would exist if the TPP negotiations were conducted within the WTO, because Japan and China are already members of the WTO. Similar hurdles are posed by the knotty net of bilateral and regional arrangements that is emerging in Latin America. These deals have helped to deepen and broaden free trade—across sectors and countries—absent progress in global trade talks. But there’s only so much attention and energy left for expanding free trade, and we already have a framework for doing so: the WTO. The more attention individual countries devote to their own regional or individual trade agendas, the more likely it will be that the momentum—and the potential—of the WTO dissipates. Back to top Reducing trade barriers makes sense at any level. BY BERNARD K.GORDON Do regional trade agreements weaken the WTO and the global push for free trade? No Bilateral and regional trade agreements like the Trans-Pacific Partnership (TPP) are not only consistent with the spirit and commitments of the World Trade Organization (WTO), they are the only things keeping the global push toward free trade alive. In fact, given the current paralysis in the WTO’s Doha Round of negotiations, agreements like the TPP may represent the future of free trade. Foreign trade was not a prominent issue during much of President Barack Obama’s first year in office. That changed in November 2009, when he announced the U.S. would “engage” in an ambitious effort to establish a genuine free trade area in the Pacific region: the Trans-Pacific Partnership. The TPP grew out of a 2002 agreement among Chile, Singapore and New Zealand, became formalized in 2005 when Brunei joined and picked up speed in 2008 when Australia, Vietnam, Peru, and the U.S. all expressed interest in joining. The TPP would encourage small-business participation in foreign trade, deal with such sensitive issues as government procurement policies and the products of state-owned enterprises, and deeply affect trade involving issues of copyright, patents, and intellectual property. The U.S.’ formal participation brought the TPP’s size to nine, and Washington has since taken the leading role in TPP negotiations—making it the central feature of U.S. trade policy. Inevitably, these developments led to questions about their meaning for the integrity and future of the WTO. The recent prominence of the TPP makes those questions especially pertinent because the number of “regional” economic and trade arrangements, of which the TPP is one, has risen sharply during the past two decades. In contrast, the WTO is intended to be the single global body dedicated to setting the rules for international trade, generally by reducing trade barriers among nations. Leading trade economists such as Anne O. Krueger and Jagdish Bhagwati have been outspoken in expressing concerns that this more focused activity on trade may portend a decline in America’s long-standing support for the WTO and its goals. Article 24 of the WTO, drawn from its predecessor, the General Agreement on Trade and Tarriffs (GATT), allows exceptions for regional arrangements as long as their agreements apply to “substantially all the trade” among participants. Neither GATT nor the WTO has had any ability to enforce that provision. One result is that more than 500 such regional trade arrangements, called RTAs by the WTO, now exist; for many of those RTAs, their principal relationship to the WTO has been to simply notify the world body of their existence. Although the WTO does not draw formal distinctions among the different kinds of RTAs, it is possible nevertheless to distinguish three distinct categories of regional trade bodies. Type I includes the European Union and the North American Free Trade Agreement (NAFTA). Both have brought significant lowering of trade barriers among their members, and expanded their intra-regional trade. Specific sectors of some members’ economies have been negatively affected—for example, in NAFTA, U.S. exports to Mexico of less-expensive American corn and wheat caused problems for Mexican farmers. But since the key actors in both NAFTA and the EU continued to be supporters of the multilateral trade agenda, neither agreement has damaged the broad purposes of the WTO. A different judgment applies to the much larger Type II category of regional trade agreements, often called “free trade areas.” They include Mercosur, the China-ASEAN FTA, and several “economic partnership” agreements. Mercosur in its early years did contribute to increases in intra-regional trade. But it has fallen on hard times and Venezuela’s recent admission, as an experienced analyst puts it, “effectively puts to rest the pretense of Mercosur as a serious economic integration arrangement.”1 Likewise, the large China-ASEAN FTA, with its dozens of exceptions, also makes a mockery of its “free trade area” label. Critics cite three complaints. First, they argue all such FTAs should instead be called “preferential trade agreements” (PTAs), because by granting trade-opening measures only to their members, they detract from the goals of the WTO. Second, the sharp rise in regional arrangements has damaged the WTO’s centrality to the world trading system. If states can achieve their goals by virtue of regional FTAs, why bother with the WTO? Finally, because many RTAs allow for numerous exceptions—so members can exclude select goods and services from their trade agreements—they do not meet the “substantially all trade” standard of the WTO’s Article 24. The same is not true for the TPP. What puts the TPP into a separate category, Type III, is both its plurilateral nature and its genuine free trade goals. Indeed, the TPP’s more than 20 chapters reach into every sector of a nation’s economy that is involved in foreign trade, including merchandise, agricultural goods, banking, insurance services, and trade-related activities on the Internet. One indication of the significance of the TPP is that both Canada and Mexico just joined in October, meaning the bloc will encompass 658 million people and a combined GDP of $20.5 trillion. Another telling clue about the nature of the TPP is in its origins: the three small states that began negotiations—Chile, Singapore and New Zealand—have led the world with their open-trade policies. In sum, the TPP aims for a comprehensive trade-liberalizing agreement that will not only deepen traditional WTO reforms but add new obligations in “areas not yet subject to WTO disciplines.” No one knows whether these aims will be fulfilled, but their purpose reflects deep and enduring U.S. goals fully consistent with the GATT’s original commitment to a world of open trade. The multilateral and global GATT/WTO approach had strong U.S. support for more than 50 years, and its successes helped the WTO grow to more than 150 members. In fact, it may be the WTO’s size that has contributed to its present stasis, partly explained by former USTR Robert Zoellick’s comment that the “won’t do” nations have prevailed over those who “can do.” In contrast, the TPP reflects that “can do” mission, and, rather than detracting from the WTO, is likely to sustain the genuinely open-trade goals shared by the U.S. and the WTO.