FTAs – Tool of US foreign policy

The Optical
September 2003

On Wed, President George W. Bush signed into law the U.S-Singapore Free Trade Agreement (FTA) making it the first time the U.S has entered into an FTA with an Asian nation.

Professor Weintraub of The Center for Strategic and International Studies in an analysis of U.S trade policy writes “An FTA, in other words, is not necessarily an agreement in which all parties benefit from trade expansion, but rather a favour to be bestowed based on support of US foreign policy.” (See below.)

Singaporeans need to ask if this is the case and if so what does it mean for Singapore in the long term not only economically but politically?

The PAP government’s support for the FTA has been amplified with the help of most local media reports that have pretty much praised the U.S-S’pore FTA. Just to get a taste refer to these latest reports in today’s Straits Times:

Cheers as Bush signs FTA with S’pore into law: http://www.straitstimes.com.sg/topstories/story/0,4386,208196,00.html?

Free trade agreements sure to reap a good harvest: http://www.straitstimes.com.sg/singapore/story/0,4386,208254,00.html?

In such an atmosphere where a barrage of propaganda has been unleashed about the benefits of the FTA, ordinary folks like us have not been given the full picture of such FTAs and what it would mean to our country. Apparently there are no downsides to such FTAs.

What’s more worrisome is the fact that most people here don’t give a damn about such things thinking that as long as the PAP’s taking care of things, they’re fine. That’s when, to put it bluntly, Singaporeans get screwed!

The Politics of US Trade Policy by Professor Sidney Weintraub
(Source: BBC News)

As the Cancun world trade talks are about to begin, the United States has also been pursuing a strategy of regional and bilateral free trade deals.

But do these necessarily help the cause of free trade? For those who believe that international trade increases world economic welfare, the best negotiating forum for reaching trade deals has to be the global one, the World Trade Organization (WTO). Its importance also explains why the WTO is anathema to trade and globalisation sceptics.

There is considerable disagreement among analysts as to whether regional or individual trade agreements also stimulate total trade, but few analysts contend that they can substitute for global negotiations.

Some argue, however that more comprehensive free-trade commitments can be negotiated in smaller negotiations. For example, the North American Free Trade Agreement (NAFTA) went much further in liberalising trade and investment between Mexico, Canada, and the United States than did the earlier phases of the Uruguay Round of trade talks, and some of these advances were later incorporated in the final Uruguay Round agreement.

The downside of these smaller free-trade agreements is that they discriminate against countries not party to them. They therefore negate the most important principle of the WTO, that of most-favoured-nation (non-discriminatory) treatment.

US approach flawed

Robert Zoellick, the U.S. trade representative, has enunciated a strategy that he calls competitive liberalisation, in which the United States will negotiate reductions in trade barriers simultaneously in a variety of forums: bilateral, multilateral, regional, and global.

The US has just completed bilateral free trade agreements (FTA) with Chile and Singapore, while multilateral free trade negotiations are taking place with the five countries of the Central American Common Market, and regional negotiations are in progress to establish a free trade area of the Americas (FTAA).

But it is by no means clear how the United States will chose its next bilateral negotiating partners. Sometimes the choice is based mainly on the open trade policy of the partner countries (like Chile and Singapore), sometimes on hemispheric political grounds (as with Central America), sometimes on global strategy (as in the proposed negotiations in the Middle East), and sometimes because of support for US foreign policy (so a deal with Australia but not New Zealand).

Keep in mind that the main justification for non-global negotiations is that more can be achieved in them than through the WTO. Yet the current indication coming out of Washington is that the Free Trade Area for the Americas will be slimmed down in substance to meet misgivings of other hemispheric countries, notably Brazil.

And it is becoming more clear daily that the Central American agreement is likely to be a watered down version of the Chile and Singapore free trade agreements. This leaves the uneasy feeling that reaching agreement takes priority over the content.

Limited gains

Another complaint about US trade policy is coming from the business community, namely, that the plethora of trade agreements recently negotiated and being contemplated do not involve very much trade.

Chile and Singapore are important markets for the United States (U.S. exports to these countries in 2002 were $2.6bn and $16.2bn respectively), but they pale in comparison with Canada and Mexico ($160bn and $97.5bn last year). US exports to Jordan ($404m in 2002), with which an FTA exists, are clearly underwhelming, as are US shipments to Morocco ($565m 2002) and Bahrain ($419m last year), with which FTA negotiations are contemplated. Business leaders prefer that trade agreements be used to promote trade rather than as political tools.

Politics of trade

There is always a political element in a trade negotiation, especially because a free trade agreement (FTA) provides a preferential benefit not generally available to other countries. The elder President Bush undoubtedly welcomed Mexico’s request in the early 1990s to negotiate an FTA with the United States because it signalled a positive shift in the relationship, but -and this must be emphasized – it also held the potential for significant trade and investment expansion.

The proposal for Free Trade Area in the Americas has a large political element in light of where the United States is located, but the idea is not merely symbolic because the trade and investment consequences can be substantial.

However, current US policy seems to put a more direct emphasis on the political aspects of trade agreements. The signing of the Chile deal was delayed briefly because of US unhappiness over Chile’s opposition to the second United Nations resolution on war with Iraq. And some suspect that a deal with Egypt was delayed after Egypt refused to join in the US complaint against the EU over GM foods.

The sense that is now being conveyed around the world is that US policy is to sign free trade agreements with other countries only if they are prepared to adhere to US foreign policy positions.

An FTA, in other words, is not necessarily an agreement in which all parties benefit from trade expansion, but rather a favour to be bestowed based on support of US foreign policy. Professor Sidney Weintraub holds the William Simon chair in political economy at the Center for Strategic and International Studies in Washington, DC, an independent, non-partisan public policy research organization.

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