A High-Risk Trade Policy

Bernard K. Gordon

From Foreign Affairs, July/August 2003

Article preview: first 500 of 4,774 words total.

Summary:  Washington's unwise return to economic "regionalism," evidenced by the many U.S. efforts to build new bilateral or regional free trade agreements, threatens to damage both U.S. foreign and U.S. trade policy. The United States should work instead to strengthen the WTO and the single world trade system it represents.

Bernard K. Gordon is Professor of Political Science Emeritus at the University of New Hampshire and the author, most recently, of America's Trade Follies: Turning Economic Leadership Into Strategic Weakness. An earlier version of this essay was presented to the Cordell Hull Institute in Washington, D.C.

A STEP IN THE WRONG DIRECTION

Robert Zoellick, the U.S. trade representative and the main force shaping U.S. foreign trade policy today, combines prodigious negotiating skills with an equally solid background in realpolitik. Nevertheless, the current American approach to trade, over which he has presided, promises to severely damage U.S. foreign policy and trade. At the heart of the problem is Washington's unwise return to economic "regionalism" -- an approach evident in the many U.S. efforts now underway to build new bilateral or regional trade agreements with a number of small trading partners.

Washington's regionalism aims, in principle, to induce the world's major trade actors, especially Europe and Japan, to complete the broader, multilateral agenda of the World Trade Organization (WTO). This strategy is no secret; in fact, it has been publicly discussed several times. In a letter to the author in late 2001, for example, Zoellick wrote,

I believe a strategy of trade liberalization on multiple fronts -- globally, regionally, and bilaterally -- enhances our leverage and best promotes open markets. As Europeans have pointed out to me, it took the completion of NAFTA [North American Free Trade Agreement] and the first APEC [Asia-Pacific Economic Cooperation] Summit in 1993-94 to persuade the EU to close out the Uruguay Round. I favor a "competition in liberalization" with the U.S. at the center of the network.

Zoellick's description of events in the early 1990s is dead on. That was a time when the former main framework for world trade, the General Agreement on Tariffs and Trade (GATT), was notoriously in trouble -- "GATT is dead," economist Lester Thurow declared at the time -- and its weaknesses led to the establishment of the considerably more institutionalized WTO. American efforts were key to that change, and the WTO's present Doha Round of negotiations likewise owes much to Washington. Two recent and very bold American proposals -- dealing with trade in agricultural goods and industrial products -- could make the Doha Round the most successful round thus far.

Yet at the same time the United States has also accelerated its "free trade areas" policy, and these ftas -- precisely because they are not broadly multilateral -- are bound to cause serious problems. Aside from the conceptual and practical challenge they pose to the WTO (a point its leaders recognize and often condemn), regional ftas are also fundamentally incompatible with America's national interests. Nowhere is that incompatibility clearer than in East Asia, where local ftas are proliferating, and where all are justified as a necessary response to American initiatives.

China, for example, since 2001 has embarked on a mission to achieve a free trade area with all of Southeast Asia and has begun work on a similar arrangement in Northeast Asia. In direct response to that Chinese initiative, Japan has announced that it is ending its 50-year commitment to multilateral trade. Recognizing how large is its policy shift, Japan frankly calls it a "departure." Yet both countries, to explain and justify their new emphasis ...

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