U.S. to Push Strategic Free Trade Agreements

Armed with greater bargaining power, the Bush administration is pushing forward with an aggressive market-opening campaign aimed at promoting growth and countering global concerns about U.S. protectionism, and a top priority is completion of free trade agreements with Chile and Singapore.

The White House also has said it plans to initiate bilateral trade talks with Central American nations and Morocco and is considering adding Australia and South Africa to the list.

The Bush administration calls this strategy “competitive liberalization.” That means striking up bilateral agreements with strategic countries while also making progress on the regional Free Trade Area of the Americas and a new round of global trade talks, both of which have a 2005 deadline.

Lowering tariff barriers in Chile for U.S.-made tractors and wheat and getting U.S. bankers a bigger piece of Singapore’s lucrative financial market are just part of the goal. Equally important, U.S. officials say, is that this month’s hard-fought passage of a bill giving the president so-called fast-track authority to negotiate trade agreements sends a message to trade partners in Europe, Asia and Latin America that the U.S. is aggressively returning to the negotiating table.

Administration officials say the bilateral agreements can be used as a testing ground for resolving contentious issues and will increase the pressure on recalcitrant trading partners worried that they will be squeezed out of the lucrative U.S. market.

“A fundamental aspect of our trade policy is to create competition for liberalization,” said a top U.S. trade official who spoke on condition of anonymity. “Doing a bilateral agreement with Chile or the Central American countries provides more stimulus for other countries in Latin America and makes sure we’re on track for the hemispheric agreements like the FTAA.”

Tactic Could Backfire

Trying to push on so many fronts is risky, some contend, because the results can backfire. When the U.S. gave Ecuador duty-free access to the U.S. market for its tuna as part of a trade pact aimed at discouraging drug trafficking, it triggered an outcry from hard-hit seafood producers in the Philippines, a key U.S. ally in Asia.

“When you get a lot of things happening like this, it can create messed-up trade regimes and a lot of foreign policy headaches,” said Edward Gresser, a former Clinton administration trade official now at the Progressive Policy Institute in Washington. “My hope is they focus on the big things, like FTAA, and not quite as much on bilateral agreements.”

During a visit to Latin America this summer, U.S. Trade Representative Robert Zoellick said he wanted to complete the Chile and Singapore negotiations by year’s end.

The governments of Chile and Singapore are friendly to the United States and eager to strike deals that would expand their exports and improve their regional stature. The U.S. has free trade agreements with Mexico, Canada, Israel and Jordan.

Since the Bush administration’s economic summit in Waco, Texas, two weeks ago, President Bush and other key Cabinet officials have been traveling the country trumpeting open borders as a key to America’s turnaround. But this message has been greeted with skepticism, particularly among foreign governments unhappy with recent U.S. moves to restrict steel imports and boost farm subsidies.

Agricultural reform is one of the most contentious issues in global negotiations. Developing countries argue that they have not been able to benefit from trade liberalization because they can’t compete against heavily subsidized farmers in the U.S., Europe and Japan.

Lowering Barriers

To address those concerns, the Bush administration last month floated a far-reaching proposal in the World Trade Organization to reduce barriers in farm trade. The U.S. suggested phasing out export subsidies, cutting the global average farm tariff to 15% from 62% and restricting subsidies to 5% of a country’s agricultural production.

Europeans, who spent $2 billion on export subsidies in 2000, compared with $20 million by the U.S., dismissed the plan as unworkable. But other countries viewed the proposal as evidence that the U.S. was willing to take painful steps to move its trade agenda forward, according to the U.S. trade official.

“Since that proposal was made, we have been getting a lot better reaction from countries,” he said. “It helped restore their confidence that we’re still on track to maintain reform in agriculture.”

Agriculture also is a sticking point in the U.S.-Chile negotiations. A regional farming powerhouse, Chile poses stiff competition in the U.S. for California grapes and wine and Alaska salmon. But U.S. farmers want greater access to Chile’s market, particularly in protected areas such as wheat and vegetable oil.

Elimination of Chile’s 6% tariff also would help U.S. firms whose share of the Chilean market has declined to 18% from 24% since 1997. The National Assn. of Manufacturers attributes much of that $800 million in lost sales to competition from countries such as Canada and Mexico that negotiated free trade agreements with Chile.

Advantages for Chile

For Chile, a trade agreement with the U.S. would provide a powerful vote of approval at a time when many of its neighbors in Latin America are struggling to stay afloat.

“To be a member of this rather exclusive club would imply that Chile would be singled out in international financial circles as a country that is reliable,” said Andres Bianchi, Chilean ambassador to the U.S. “The main advantages for us would be to increase and diversify our exports, reduce the cost of external financing and attract more foreign investment.”

Singapore, a prosperous city-state hit hard by the technology downturn, also is seeking trade alliances to bolster its status as a regional entrepot. In return, the U.S. wants greater access for U.S. companies in tightly controlled areas such as banking and accounting. In the lucrative area of retail banking, only five foreign firms, including Citigroup Inc.’s Citibank, are licensed to operate in Singapore, according to the U.S. government.

As an influential member of the Assn. of Southeast Asian Nations, Singapore carries clout within the region and frequently has offered itself as a counterweight to Western concepts of human rights and social justice. Although Singapore is regarded as one of the most open economies in the world, its government has drawn criticism for its tight control of political opposition and the media.

Gary Hufbauer, a senior trade analyst at the Institute for International Economics, said Singapore’s regional prominence makes it more difficult to sign on to a trade agreement whose provisions on labor and the environment could be viewed as an infringement of sovereignty.

Under provisions of the fast-track trade legislation, U.S. negotiators must ensure that trade agreements include provisions to deter governments from watering down their labor or environmental laws to attract business from abroad. Congress can approve or deny but not modify any agreements negotiated by the president.

Singapore “may not be willing to sign because it would be regarded as a sellout to the U.S. and a benchmark that would be used in Asia,” Hufbauer said. “I regard those as the trickiest issues for the U.S. and Singapore to negotiate through.”

New Approach Possible

Sandra Polaski, a former State Department official who worked on labor issues, said the eagerness of Singapore’s government to conclude such a trade deal gives the Bush administration room to be creative. For example, Brazil prefers using fines rather than trade sanctions in cases in which a government fails to uphold its labor or environmental laws. One compromise would be the model used in the North American Free Trade Agreement in which trade benefits are withdrawn only if the offending party refuses to pay a fine for such violations.

Another potential flashpoint is the inclusion of an investor dispute provision aimed at protecting U.S. firms that do business in countries with weak or corrupt judicial systems. This obscure measure gained notoriety under NAFTA, when foreign investors began suing the governments of Canada, Mexico and the U.S. for actions that were allegedly discriminatory or trade-restrictive. In the first case targeting a U.S. environmental law, Canadian firm Methanex Corp. sued the U.S. for $970 million in damages claiming that it was harmed by the state of California’s ban on MTBE, a gasoline additive.

By establishing a model for handling these controversial issues, the Bush administration could help address the growing unease among Americans that increased trade threatens U.S. jobs, leads to exploitation of foreign workers and increases environmental abuse, according to Polaski, a senior associate at the Carnegie Endowment for International Peace.

“This is a case where the [Chile and Singapore agreements] could provide momentum to the entire trade agenda or it could be a self-inflicted wound that continues to keep our policy debate fractured,” she said.