Sunday, October 18, 2009

Moving On

The world is moving on without the United States.  Our trading partners have decided that they can no longer wait for the White House to emerge from its self-induced ObamaCare coma.  They are moving on, and both the United States and the global economy are worse off for it.

It's no longer a secret that, after charting an aggressive trade liberalization plan last spring, the Obama administration has since eliminated all tangible support for free trade in a wrongheaded attempt to ensure support for health care "reform" and climate change legislation.  Indeed, administration officials have openly admitted that they've shelved the Mexican trucking dispute and pending FTAs until these domestic priorities are achieved.  Other issues, such as a Doha negotiating mandate, Buy American and Section 421, have been similarly sacrificed on the mantle of domestic politics.

The effects of the White House's political strategy are being felt on both the multilateral and bilateral levels.  On the multilateral front, I've already documented the blowback: first, the EU and Brazil have openly fretted about the United States' failure to establish firm negotiating positions in the WTO's Doha Round, and they implored us to get in the game or else they'd be forced to move the process along without American input; second, our trading partners essentially blew off very public US demands on "sectoral" tariff elimination agreements and services liberalization.  As I said the other day, we're quickly becoming a "WTO backbencher."

On the bilateral front, our failure to ratify pending FTAs with Colombia, South Korea and Panama is producing equally distressing results.  I freely admit that I'm not a huge fan of bilateral FTAs and strongly prefer unilateral or multilateral liberalization, but I also understand that politics and a comatose Doha round often make bilateral FTAs the only option for significant market opening.  So the fact that our trading partners are completing such deals right and left while we sit on agreements that were signed years ago is a problem.  Consider just a few examples: 
  • On October 15, South Korea completed a massive (~$28 billion) FTA with the EU that should enter into force in late 2010.  The agreement, which will seriously disadvantage US businesses in the Korean and European markets vis a vis their European/Korean competitors, actually used the Korea-US FTA (KORUS) as a template to speed completion of the complex negotiations.   Moreover, the EU showed real backbone by completing the agreement despite significant resistance from its domestic automakers - the exact same type of resistance that has stopped feckless American politicians from considering and passing KORUS.  Indeed, KORUS is actually stronger on autos than the EU agreement, because it contains a "snapback" provision that would re-establish US tariffs on Korean automobiles in the case of a dispute over the agreement. The EU agreement has no such provision.  So even though the United States completed KORUS more than two years (June 30, 2007) before the EU-Korea deal, it is very likely that the latter will enter into force long before the former.  And American exporters will pay the price.  Embarrassing.
  • South Korea is also negotiating bilateral FTAs with Canada, Mexico, India, New Zealand, China, Colombia, Peru, the Gulf Cooperation Council, and Japan; and Seoul is exploring deals with Mercosur, Malaysia, Turkey, and possibly Israel.  All the while, the completed KORUS agreement collects dust.
  • Panama and Colombia are following in the Koreans' footsteps, albeit on a smaller scale.  On August 11, 2009, Panama and Canada completed FTA negotiations, and Panama announced recently that it has begun bilateral negotiations with the EU and several Caribbean nations.  (A Chile-Panama FTA is already in force.)  Since the US-Colombia FTA was signed in November 2006, the Colombians have completed bilateral trade agreements with Canada, the European Free Trade Association (EFTA), and the "Northern Triangle countries" (El Salvador, Guatemala and Honduras).
These bilateral examples closely parallel the aforementioned multilateral problems and make clear that US trading partners are not sitting on their hands while the White House plays political footsie with their economic futures.  Optimistic free traders like AEI's Claude Barfield hope that other nations' bilateral moves will push the United States to get its free trade act together in order to avoid harming our ability to compete in key markets.  One can only hope, although I'm not so sure that anything will change until the domestic political dynamic shifts significantly - whether that's through the passage or failure of ObamaCare and cap-and-trade or a GOP rout in the 2010 elections.

However, if Barfield and others are right and the extracurricular activities of Korea, Colombia and Panama (most notably implementation of EU-Korea FTA) force the White House to advance the pending FTAs regardless of domestic politics, the irony will be as thick as it is depressing. The United States initiated these (and other) trade agreements pursuant to "competitive liberalization," under which we entered into bilateral/regional FTA negotiations with several countries in order to get them to compete for access to the US market and thus offer greater concessions at a faster pace.  Supporters (like former USTR Robert Zoellick) also claimed that competitive liberalization would motivate WTO Members to complete the Doha Round, as the US FTAs would provide preferential access to only a select few nations.  If the United States is forced to pass FTAs with Colombia, Korea and Panama in order to keep pace in their markets, America will have become the target of competitive liberalization, rather than its champion.  Should this "bizarro competitive liberalization" come to pass, I think it would be safe at that point to officially conclude that that the United States no longer leads on free trade but instead is forced to pursue it as a last resort. 

And that would be a shame.


Colin said...

Somewhat of an aside, but particularly damning is the manner in which the Obama Administration has left Colombia to twist in the wind. In August the US and Colombia concluded a defense partnership agreement which drew vociferous complaints from Venezuela -- vowing to end all bilateral trade with Colombia -- and to a lesser extent Ecuador.

Since August Colombia's trade with Venezuela -- it's second largest trading partner -- is down 52%. Trade with Ecuador is down 20%. And the US shows no inclination of helping to assuage the pain by putting any muscle behind efforts to get the Colombia deal through.

LaurenM said...

And don't forget the potential Japan-EU trade agreement, EU-Canada, ASEAN-India. Large trading blocks like EU and ASEAN are moving forward at breakneck speed - I agree, the US is getting left in the dust on these.