TICFA, political economy of US bilateralism and Bangladesh

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Protesters hold up a sign commemorating those killed in recent clothing factory tragedies in Bangladesh outside Wal-Mart Stores Inc. headquarters in Bentonville, Arkansas, on June 5, 2013. (Photo: Reuters / Rick Wilking)

Countercurrents.org | 27 November, 2013

TICFA, political economy of US bilateralism and Bangladesh

By Mohammad Tanzimuddin Khan

The US government first proposed signing the Trade and Investment Framework Agreement (TIFA) with Bangladesh in 2001. The first draft included nine articles and 13 paragraphs on trade and investment related issues between the two countries. Critics of the TIFA warned that signing the agreement would not serve the economic and development interests of an economically weak country like Bangladesh. Rather it would allow the economically powerful US further opportunities to pressure its counterpart so as to further its economic and trade ends. Against a background of public criticism the two governments revised the draft in 2005 to incorporate seven articles and 19 paragraphs, though this revisions did little to address the critics grievances.

Now, after a decade of negotiation, and a series of name changes in other cases with four other countries – Trade and Investment Cooperation Forum (TICF), Trade and Investment Development Cooperation Agreement (TIDCA), Framework Agreement for Trade, Economic, Investment, Technical Cooperation (FATEITC) – TIFA has become Trade and Investment Cooperation Forum Agreement (TICFA) for Bangladesh, and was jointly signed on the 25th of November, 2013.

Those who advocate, or at least do not oppose, TICFA vindicate it exclusively from an economic point of view, disregarding the political economy context of the USA’s recent predilection towards BTI agreements and the obvious and multi-dimensional power asymmetry of the signees.

However any comprehensive understanding must consider (a) the political economy of the US preference for BTI; (b) the implications of TICFA for Bangladesh; (c) the experiences of the countries already in such agreements with the USA.

The Political Economy of the US Preference for BTI

Throughout the post-war period the foreign economic policies of the USA were generally multilateralist, promoting a (neo-)liberal world order. The establishment of the General Agreement on Tariffs and Trade (GATT), the World Bank, and the International Monetary Fund (IMF) were central to this project. What bilateralism there was, was limited to certain trade instruments, like voluntary export restraints (VERs), and trade remedies like Section 301 and later Super 301, and did not involve bilateral or regional trade agreements.

While this multilateralist approach initially served the US well, over time its effectiveness at ensuring continuing US predominance came under pressure as the US share of world exports of manufactures declined from 29 percent in 1953 to 13 percent in 1976, and the weighted real exchange rate of the United States (in index terms, 1975 = 100) depreciated from around 83 in 1961 to 106 in 1978.

By the 1980s, US economic dominance deteriorated to a position of equality or symmetry with other industrial countries like Japan and Germany. This symmetric interdependence saw the US government turn to promoting regional trade blocs in the late 1980s and early 1990s. This trade policy change coincided with the demise of the ideologically bipolar world, and was realized through the US participation in the North American Free Trade Agreement (NAFTA), the Enterprise for the Americas Initiative (EAI), the Asia-Pacific Economic Cooperation (APEC) forum, and the ASEAN Regional Forum (ARF).

At the same time various types of alliance building in terms of regional identity, development level, trade, economic, environmental issues (Cairns Group; ACP, friends of fish, G-90, small and vulnerable economies, Africa Group etc.) emerged in multilateral trade negotiations. This trend in alliance building acted to offset the political clout of the USA in multilateral negotiations, particularly after the World Trade Organization (WTO) replaced the GATT in 1994. In this new context the US government was no longer able to successfully pursue its agenda of coercing the small countries to embrace US defined legal standards of trade and investment regime.

The declining effectiveness, for the US, of the multilateralist approach is tied up with – and partially reflected in – its economically "falling behind" syndrome when compared to its major trading partners and competitors. The US economy is currently in a decidedly precarious condition, with a GDP growth of 1.6% compared to the robust 7.8% of the world’s second largest economy, China. In 2001, Robert Zoellick, the US trade representative, explaining the reason for this comparative economic decline, blamed US sluggishness in signing bilateral trade agreements.

. . . While the United States stepped aside, others moved ahead. The European Union now has 27 bilateral free trade and customs agreements, 20 of which it negotiated in the course of the 1990s, and the EU is in the process of negotiating 15 more. After NAFTA, Mexico sped past the United States to negotiate eight free trade agreements with 32 countries… There are over 130 free trade agreements in the world; the United States is party to only two. There are 30 free trade agreements in the Western hemisphere; the United States belongs to only one.

Even before Zoellick’s diagnosis, competitive and strategic concerns had seen the US begun to retreat from its multilateralist commitments, at first by the signing of a TIFA with its strategic ally Taiwan in 1994, with the objective of entering later into a full-fledged bilateral trade agreement in future. Since then, according the Office of the US Trade Representative (USTR), the US has signed such forerunner agreements with more than 50 countries, most of which are strategic allies. Through these bilateral agreements, the US seeks to ensure advantages it cannot achieve in a multilateralist negotiation forum. As USTR says: "TIFAs can help focus attention on trade issues which often include barriers that the US faces, and, therefore, can help expand US access".

Implications for Bangladesh

It should come as no surprise then that TICFA is not really an economic cooperation or development agreement. On the contrary, the agreement is devoid of sector-driven or market access-centric elements for bilateral cooperation over trade and trade plus issues, being essentially a US initiated platform platform, outside the WTO framework, for bilateral negotiation over trade, investment facilitation, intellectual property rights (IPR), and other trade plus issues (labour standard, environment, corruption, transparency etc.). It does not contain anything that addresses those market access and development issues essential if Bangladesh is to develop its trade and economy.

In the context of the recent cancellation of Generalized System of Preference (GSP) by the US government, issues of market access demand more policy attention than ever from Bangladesh, especially given that the apparels exporters of Bangladesh must pay a 15.3% duty to enter US markets. However, the TICFA has no authority to go beyond issues that are of special concern to US policy makers.

The forum agreement reiterates the bilateral commitment of the parties to the Bilateral Investment Treaty, signed in 1986 during the autocratic Ershad regime, and before the establishment of the WTO. In fact, rather than being a genuinely bilateral, this initial agreement was little more than a unilateral commitment on the part of an LDC, struggling hard to attract foreign investment for its economic prosperity. Current U.S. direct investment in Bangladesh is second only to that of the UK, and now stands at USD 1 billion. More importantly, it has significant investments in the environmentally and locally sensitive energy and power sectors, with Chevron the major US investor in Bangladesh, and more than $2 billion in the pipeline for the development of power plants, coal mines and fertilizer plants.

Obviously, bilateralism under such a strategically motivated agreement, sidelining the already existing multilateral platform of the WTO, holds a potential risk for a country like Bangladesh. It can be expected that the gradual relative economic decline of the US will see it become diplomatically more aggressive in its bilateralist efforts, with no assurance at all that the weaker partner to such agreements may not accede – willingly or not – to the wishes of its globally powerful ‘partner’. This is particularly the case when the ruling party of the weaker power has a performance deficit or legitimacy crisis on domestic front. In such cases the ruling elites of the weaker country may seek external support by giving the stronger party what it wants. The signing of the TICFA by the Bangladesh government on the eve of the chief election commissioner announcing the national polling date strongly hints that vulnerability. Predictably, at this critical juncture at the domestic political level, the major opposition party of Bangladesh has also welcomed inking of the TICFA, expecting this to help them earn the political "confidence" of the global superpower.

Nor, if we are to appreciate the implications for Bangladesh of signing up to TICFA, can we ignore the fact that Bangladesh has been one of the most influential and vocal WTO members in multilateral trade negotiations in upholding the interests of the LDCs. In many cases Bangladesh has operated as a leader on behalf of the LDCs at the WTO. However, by signing this bilateral forum agreement Bangladesh has weakened is position in this arena. For it has incurred an expectation that it will not harm the trade and economic interests of the US and its allies, thus undermining its capacity and will to stand up for the interests of other LDCs; and especially important development at a time when many of these countries – having already signed bilateral framework/forum agreements – have now started to feel the pinch of one-on-one approach based trade negotiations with the USA.

Experiences of the signatory countries

Evaluating the experiences of the southern countries’ bilateral agreements with the US and the EU, Saman Kelegama, executive director of the Institute of Policy Studies of Sri Lanka, observed that "southern countries most often ignore the details of the trade arrangement at the start and thereby undermine the cost of market access". [1]

He explained how US policy makers had imposed conditionality on Sri Lanka a pre-condition for its readymade garment products to access US markets. The conditions imposed by the USA included fulfilling the stipulated rules of origin with a provision of reverse purchase of US fabrics; amending IPR laws to remove obligations for compulsory licensing and withdraw the competition policy legislation; and liberalization of the capital account for trade exchanges with the US. The same conditionally story holds for Chile and Singapore. After signing bilateral trade agreements they have lost the authority to exercise control over capital outflows to the USA.

In most cases the inclusion of such controversial and sovereignty compromising issues in US bilateral trade agreements is the outcome of multinational corporations lobbying centered on the drive for profit maximization and monopoly control. For instance, the Intellectual Property Committee, a coalition of the 13 largest US-based multinational corporations, worked with the office of the US Trade Representatives to propose imposing US legal standards on global IPR and making those rights enforceable under WTO agreements. (Ninety-six of the 111 members of the US delegation negotiating on IPRs during the Uruguay Round were from the private sector.)

US multinationals seek to force US trade partners to commit to obligations that go even further than those in the WTO Agreement on Trade Related Intellectual Property Rights (TRIPS). They have been lobbying for the patenting of biotechnological innovation to be included in bilateral trade negotiations not covered under the original TRIPS. This venture is now known as ’TRIPS-plus’. The Industry Trade Advisory Committee-15 (ITAC-15) on IPR – comprised of chief executives of certain multinational companies from different sectors – has been insisting on the incorporation of TRIPS-plus measures in BTI agreements. [2]

Under the impact of ITAC-15’s policy advocacy, the TIFA signatory countries, including Laos, Vietnam, Morocco and Singapore, incorporated domestic plant variety protection laws based on the TRIPS-plus model of the International Union for the Protection of New Varieties of Plants (UPOV). The UPOV provides for patenting plants, animals, and even ’essential’ biological processes, for the production of plants and animals. The advisory committee in its report on the US-Oman free trade agreement also advised the US government that they maintain "a strong bilateral program to deal with IPR deficiencies in non-FTA countries, many of which are critical markets…. It is therefore essential that traditional trade tools such as Special 301, Section 301, the unilateral trade preference programs and WTO dispute settlement be aggressively employed to lift levels of intellectual property protection in those countries.’

TIFA/TICFA is not only a corporate lobbying-driven trade and investment framework. It is also broadly related to US foreign policy objectives and geopolitical goals. The US manipulates these agreements to ensure politico-economic and military gains from its weaker trade partners. The US government brought its partners of "war on terror" – including Australia, Thailand, Pakistan and the Middle Eastern countries – under BTI immediately after the events of 9/11. A 2004 statement by the US trade representative Robert Zoellick during US-Pakistan bilateral investment talks reveals BTIs security implications. He emphasized that: "Pakistan and the United States are partners in combating global terrorism. A BIT [bilateral investment treaty] based on the high standards contained in our model text can play an important role in strengthening Pakistan’s economy, so as to create new opportunities for exporters and investors in both economies and assist in meeting the economic conditions to counter terrorism" [emphasis given]. He expressed similar sentiments while signing the TIFA with the United Arab Emirates (UAE) and Qatar in the same year.

The Last Words

The US is not the only country that pushes for bilateral agreements. The European Union, Japan, and even India, do the same. There is no harm in it as long as these agreements serve the trade and economic purposed of the two countries. But when bilateral agreements like TIFA/TICFA are the results of the strategic and security concerns of a globally powerful actors, aimed at sidelining the WTO and imposing more radical and stringent obligations on trade and investment and IPR on the economically weak partners, one should question the wisdom of signing up to such agreements.

As the ruling regime in Bangladesh has signed the TICFA, it is to be expected that the US will seek further gains in bilateral trade negotiation. It will be a constant challenge for the party/alliance in power – whoever it is – to make sure that Bangladesh gains or at least does lose from its bilateral reciprocity with the US.

Should we be hopeful? Well, in theory, of course, but present practice is not encouraging. The last moment signing of TICFA by the government is itself disappointing. Especially so in the absence of real effort to understand and address the issues I have raised in this document. The fear is that the agreement, and its bipartisan support by the mainstream major parties, reveals that the urge to curry favour with external powers trumps a considered concern for the best interests of Bangladesh and its peoples, leaving them behind to suffer and struggle.

Mohammad Tanzimuddin Khan is Assistant Professor, Department of International Relations, University of Dhaka

(I express my gratitude to Dr. Tony Lynch, University of New England, Australia for editing this version)

Footnotes:

[1In his article ’North-South Regional Trading Arrangements in South Asia’.

[2 LDCs have the right to delay implementing their TRIPS obligations until the end of 2021. (Patenting of plants, plant varieties and animals is still optional under WTO regulations.)

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source: Countercurrents