With or Without Doha

Charlene Barshefsky

From Foreign Affairs, December 2005 -- WTO Special Edition

Summary:  Today, the United States confronts four urgent challenges: imbalances in global trade and capital flows, South America's drift, Asia's economic integration, and the Muslim world's decline. International trade policy alone cannot solve these complex concerns, but it can play a pivotal role in dealing with each.

CHARLENE BARSHEFSKY is Senior International Partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C. She was United States Trade Representative from 1997 to 2001. EDWARD GRESSER, a policy adviser at the Office of the U.S. Trade Representative from 1998 to 2001 who is now at the Progressive Policy Institute in Washington, D.C., assisted in the preparation of this article.

As South America drifts, the United States' claim to leadership in the hemisphere is waning. The governments, the press, and the public in the region see Washington as unduly obsessed with Cuba and the International Criminal Court while indifferent to their troubles. The vision of the hemisphere embraced at the first Summit of the Americas in 1994 -- which revolved around a sense of community and shared destiny to be embodied in a hemispheric free-trade pact -- is now close to collapse.

The United States needs to restore its claim to leadership and help the hemisphere recover a sense of direction. The best way to do so would be to work in earnest to revive the Free Trade Area of the Americas as the linchpin of sustainable growth and stability in the hemisphere. Short of this, the United States should combine all of its existing agreements with countries in the region. It currently has NAFTA, a free-trade agreement with Chile, and another with the five Central American republics and the Dominican Republic; it is midway through bilateral talks with Colombia, Panama, and Peru. These six individual agreements, with their varying rules and mountains of paperwork, might do little to increase overall trade and a lot to divert trade from within Latin America. A shift in focus, with a view to uniting all these agreements, would salvage part of the earlier vision of unity; create a simpler, more efficient system better able to promote growth; and ultimately help to revive the larger hemispheric ambition. A high-standard agreement could likewise serve as a template for similar initiatives, including at the WTO.

ASIAN INTEGRATION

The United States should reengage in trade and diplomacy across the Pacific by negotiating comprehensive trade agreements with Japan, South Korea, and the major economies among the Association of Southeast Asian Nations (ASEAN); intensify engagement with China, including by supporting China's membership in the G-8 group of industrialized nations; and reinvigorate the Asia-Pacific Economic Cooperation forum (APEC).

The United States faces a powerful competitive challenge across the Pacific, and Asia faces questions about great-power relationships and security. The source of this, in contrast to the challenges faced by Latin America, is a fundamentally positive development.

Over the course of ten years, Asia has accomplished the type of economic integration that took Europe five decades. The only real difference is that, whereas Europe's integration followed a blueprint designed by government policymakers, Asia's integration has been driven by investment and trade. Each year, mainland China receives $50 billion to $60 billion in foreign direct investment, with the vast bulk coming from Hong Kong, Japan, Singapore, South Korea, and Taiwan. According to Chinese government statistics, these investments have created up to 20,000 new manufacturing facilities a year, combining the benefits of China's low production costs and large reserves of manpower with the financial and technological power of its wealthier, more advanced neighbors. Trade is following quickly, as Japan, Korea, and ASEAN countries begin to turn to China rather than the United States as their main trading partner. Beijing is capitalizing on this impetus by working toward preferential trade agreements with much of Asia. An informal "Asian Union" is thus emerging across the Pacific, bolstered by rapidly improving human capital, rising research spending, and some $2 trillion in financial reserves.

This evolution naturally raises questions for both the United States and the major Asian countries. It should spur a searching debate about U.S. competitiveness. Just as Asia's finances, manufacturing competitiveness, and human capital are improving, the United States' are weakening. Large and prolonged current account deficits in the United States are increasing the country's debt load. U.S. human capital is not improving -- graduation rates in science and engineering have been stagnant for twenty years -- and restrictions on visas for foreign students since the attacks of September 11, 2001, are exacerbating the problem. Government research spending has been falling in real terms since the 1970s. And China's ambitious Asian trade agenda has no counterpart as yet in the United States. As Asia unites and becomes more competitive, the United States' role in the Pacific is visibly waning.

Asia, too, faces difficult questions. Rather than ease political tensions, the rise of China and the integration of Asia seem to be exposing a latent rivalry between Japan and China. This is in no country's interest. U.S. reengagement with the economies of the Pacific, coupled with a commitment to reform some U.S. policies at home, can help restore a political and security balance that will serve the needs of the United States, Asia, and the world at large.

As a starting point, global economic and financial institutions need to be reshaped to accommodate a China that has joined the world's major trade and financial powers; China should be invited to join the G-8, for example, and its IMF quota allocations should be increased. The APEC process needs to be revived, with a Pacific-wide focus on issues of shared concern, such as finance, energy, climate change, and aging. The United States should balance China's network of preferential agreements by using its existing trade agreement with Singapore and the one in progress with Thailand as starting points for new initiatives with Japan, South Korea, and the other big ASEAN economies. These agreements could, in turn, reenergize APEC's vision of free and open trade. Current debate over China in the United States focuses on sore points such as currency reform and intellectual-property protection. These issues must be addressed. They must also be integrated into an ongoing economic dialogue covering the full range of financial, trade, and investment issues between the two countries. That dialogue should, in turn, strengthen a multilateral system dependent on a sense of shared responsibility.

THE MIDDLE EAST