US seeks trade insurance with bilateral pacts
Financial Times (London)
US seeks trade insurance with bilateral pacts
By Alan Beattie, World Trade Editor
March 21 2006
It’s always wise to have a Plan B. As the US urges progress in the “Doha round” of trade talks, it is also chasing bilateral trade deals across east Asia. These proposed pacts, which include South Korea, Malaysia and Thailand, will act as insurance for a disappointing round. They also put down a marker for future US influence in the region.
The US has for several years pursued a policy of “competitive liberalisation”, pursuing both multilateral and bilateral liberalisation. This irks many trade experts who say bilateral deals do more to divert and complicate trade than advance it.
But the US strategy is clear. William Rhodes, senior vice-chairman of Citigroup and chairman of the US-Korea business council, says: “Because the Doha round has been moving so slowly...there will be more of these bilateral FTAs like that being negotiated between the US and Korea.”
The bilateral talks have a sense of urgency. The US’s “trade promotion authority” - the White House’s right to submit entire trade agreements to Congress for a Yes-No vote - expires in the middle of 2007.
While the expiration of this authority sets a hard deadline for Doha, it will also close the window for the US to sign bilaterals. Karan Bhatia, deputy US trade representative with responsibility for Asia, says: “TPA is concentrating our focus on making sure we lock down agreements that we believe can and should be achieved before that deadline. We are pushing forward aggressively with Korea and Malaysia to try to close those before the time expires.”
For the US, some recent bilaterals have been largely symbolic. Deals with Middle Eastern states including Bahrain and Oman, and the Central American Free Trade Agreement (Cafta) with six tiny Latin American economies had far more to do with foreign policy than US export interests.
But Asian deals are less ceremony and more substance. South Korea is the US’s seventh largest trading partner and Malaysia the 10th largest. Happily for the White House, this means they have bipartisan support on Capitol Hill. Deals such as Cafta met stiff resistance from powerful lobbies such as the American sugar industry and labour unions while failing to offer many export opportunities to American companies.
With the east Asian talks, the US has aggressively pursued those interests. In negotiations with Malaysia, for example, it is pushing for access to highly sensitive markets including financial services and cars. It is asking South Korea to reduce protection for its highly cosseted farmers.
The pursuit of deals may also have longer-term strategic motives, seeking to maintain the traditionally dominant US influence in the region. Japan has similar export interests to the US, and has also been busy signing bilateral deals in east Asia. The European Union too is considering whether to drop its historical aversion to bilateral arrangements and join in. Perhaps most important, China’s world-beating exporters have been increasing Beijing’s reach, displacing the US as Korea’s biggest trading partner.
David Hale, founder of Hale Advisors, a Chicago-based economic consultancy, says: “The increasing intra-regional pattern of trade flows has created a powerful dynamic.” US bilaterals, he says, are as much defensive attempts to maintain a foothold in the region as aggressive bids for new markets.
China has also pursued its own bilateral and regional trade pacts, including one with the Association of South-East Asia Nations (Asean). These deals are very shallow at the moment, offering little real liberalisation. However, they may gain in substance as time goes on, and some envisage a future regional trading area dominated not by the US but by China.
Critics say the web of overlapping bilateral and regional agreements in Asia is creating a confusing “noodle bowl”. But Fan Gang, director of China’s National Economic Research Institute, says: “For China there is only one noodle in the bowl, and that is Asean.”
