Dueling Free Trade Agreements
Originally posted on Clyde V. Prestowitz on Trade
Are Free Trade Agreements (FTAs) really about free trade or are they just war by other means?
The 14th round of negotiations for the Trans Pacific Partnership (TPP) was launched last week in the Virginia suburbs of Washington D.C. If concluded, the deal would establish what it calls “free trade” between the United States, Canada, Mexico, Peru, Chile, New Zealand, Australia, Malaysia, Brunei, Singapore, and Vietnam. It would be the biggest FTA of which the United States is a member.
Just the week before, however, agreement on the start of negotiations for a Comprehensive Regional Economic Partnership (CREP) was announced in Siem Reap, Cambodia. This deal would be between the ten members of the Association of Southeast Asian States (ASEAN) plus New Zealand, Australia, India, China, Japan, and South Korea. In other words, six of the TPP countries would be in CREP and that could grow to eight if Japan and Korea join TPP as has been rumored. So the outliers would be the countries of the Americas (United States, Canada, Mexico, Peru, Chile) and the Asian giants, India and China.
But wait. It gets even more complicated. The annual meeting of the Asia Pacific Economic Cooperation (APEC) (one wants to say “forum” but it really just stops with Cooperation) is has just concluded in Vladivostok. This twenty one member grouping of Asia Pacific countries pledge in 1994 at Bogor, Indonesia to achieve free trade and investment between its developed country members by 2010 and between all members by 2020. So presumably all the members of CREP and TPP except India (which is not a member of APEC) already enjoy free trade among themselves or will do so by 2020.
Nevertheless, the apparent desire for free trade is so strong that still other groupings are moving ahead with other agreements. Even as they fight over who owns which reefs, rocks, and small islands in the waters between them, China, South Korea, and Japan are committed in principle to negotiating an FTA among themselves. China also has an FTA with ASEAN and Japan has a comprehensive economic partnership agreement with ASEAN.
Of course, all of these countries have long been members of the World Trade Organization (WTO) and thus, presumably, already pledged to universal free trade.
So why couldn’t they all complete the Doha round of WTO free trade talks? If the developed countries of APEC have achieved free trade already in 2010, how was that freer than the trade of the WTO and why do they need yet more free trade agreements? Or did they not really achieve free trade? How will the free trade of CREP be different from the free trade of the TPP? Why can’t the two groups, already with enormous overlap among their members, simply combine and form one big free trade area. Or better yet, extend to the whole of the WTO and achieve truly universal free trade?
Of course, the answer is that it’s not about free trade at all, or at least, it’s very little about free trade. In Siem Reap last week, U.S. Trade Representative Ron Kirk said that the TPP and CREP are not competitive, but complementary. That is simply not the case. They are totally competitive, not economically but diplomatically and strategically. All these arrangements are about exercising influence. None of them deal with the really key elements of trade and investment. Many of these countries pursue export led growth strategies and manage their currencies to be undervalued as a way of subsidizing exports. Many also operate indigenous industry and technology development policies and make technology transfer a condition of market access. Many also offer big tax breaks and other incentives to lure foreign investment and technology transfer. Despite all the free trade deals, the fact is that the markets of many of these countries are among the most managed and difficult to penetrate in the world. And most of these countries run persistent trade surpluses. Yet, these issues are never on the negotiating agendas.
With regard to the TPP, U.S. officials have told me that the main purpose of the deal is to demonstrate American commitment to Asia and to make a statement that “we’re back.” Of course it would be nice if it expanded U.S. exports, reduced the U.S. trade deficit and created jobs. But that’s not the main point.
It really is pretty much war by other means.