us strategy of competitive liberalization

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US Trade Strategy of Competitive Liberalization 1

US Trade Strategy of Competitive Liberalization

By Mignonne M.J. Chan *

This paper seeks to identify the underlying assumptions of the US tradestrategy of competitive liberalization, examine the applications of thisstrategy in the Free Trade Agreements proliferated by the US, analyze thelimitations entailed in this trade approach, and postulate challenges ahead

for the US to take a leadership role in the process of global liberalization.With the interchange of unilateral, bilateral, sub-regional, regional andglobal trade approaches, US trade strategists seek to maximize national

interests by publicizing the positive effects of competitive liberalization,scoring high with asymmetric reciprocity, and rewarding thelike-minded partner with strategic consideration. The effect of the TradePromotion Authority Act of 2002 granted the US President, and theconsequential conclusions pursuant to FTAs were scrutinizedincluding

* Current Position:

Director & Research Fellow, Division of International Affairs, Taiwan Institute of Economic

ResearchExpert for Individual Action Plans, Asia-Pacific Economic Cooperation (APEC)

Deputy Director General, Chinese Taipei Committee of Pacific Economic Cooperation

Council

Member, Consultative Committee, Ministry of Foreign Affairs

Member, Consultative Committee, Council of Labor Affairs, Executive Yuan

Advisor, Chinese Eurasian Education Foundation

Senior Executive Vice President, Chinatrust Commercial Bank

Areas of Expertise:International Organizations; International Political Economy; Business and GovernmentRelations; Negotiation: Theory and Practice; Asian Business Environment; Asian SecurityCooperation.


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2 Tamkang Journal of International Affairs

US-Canada FTA, US-Mexico FTA, North American Free Trade Area, FreeTrade Area of Americas, US-Singapore FTA, and Enterprise for ASEAN

Initiative. The limitations of competitive liberalization are explored in

terms of the reaction to the unilateral actions, the effect to globalliberalization, and the nature of non-inclusiveness. Finally, the challengesahead for the US will include the practice of hard-power unilateralismvis--vis soft power multilateralism, the FTAs as building blocks vis--visstumbling blocks, the approach to negotiation as asymmetric bargainvis--vis consensual community building, and the sensitivity towards amutually prosperous development round.

Keywords: Competitive Liberalization, Free Trade Agreement (FTA),

TPA (Trade Promotion Authority), World TradeOrganization (WTO), Doha Development Round, NorthAmerican Free Trade Area (NAFTA), Free Trade Area ofAmericas (FTAA), Enterprise for ASEAN Initiative (EAI).

With the collapse of the World Trade Organizations Doha Development atCancun in September 2003, the proliferation of bilateral and regional FreeTrade Agreements/Arrangements (FTAs) seem to intensify all the more.

Nations are following suit with an alarming fear of being marginalized, andracing to forge competing FTAs with unprecedented speed. Given this

background, this paper intends to focus on the following four areas: (1) toexamine the underlying assumptions of competitive liberalization; (2) toidentify the applications of this trade strategy by the US; (3) to assess thelimitation entailed in this trade strategy; and (4) to generate questionsregarding US leadership role.

The Assumptions of Competitive Liberalization


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In the interdependent global economy, all countries or economies are headingtoward a trend of greater openness in trade and investment in a competitiveway. Although there is great diversity in terms of level of development,

pace of change, timing of reform, commerce culture, and even socialvalues--especially with respect to a sense of competition-- the trend towardsliberalization seems inevitable. Liberalization is required to attract capital,

production, skilled labor and technology. Liberalization on the global level,such as the WTO (World Trade Organization) entails a set of agreements bymember economies to open their markets and lower barriers to others exports.The Agreements establish rules for trade in manufactured goods, agricultural

products, services, and intellectual property; reduce tariffs; limit the use oftrade-distorting subsidies; promote sustainable use of natural

resources; and reduce unfair obstacles to trade embodies in product standards,customs procedures and other measures. In addition, the WTO disputesettlement process provides certainty for ensuring prompt complianceaccording to commitments.

How do we keep this momentum of liberalization going? Unilaterally, the bicycle theory of stand-still and fall-back may be theoretically sound, but practically unattractive. 1 The political economy of domestic trade reformoffers conditional reciprocity via negotiation, rather than offering

unconditional MFN or open regionalism. Therefore the strategy ofcompetitive liberalization 2 keeps the interaction between preferentialand universal treatments on a supportive course. In practice, theinterchange of unilateral, bilateral, sub-regional, regional, and globaltrade strategies manifests itself in maximizing its mutually supportiveutilities .

1 C. Fred Bergsten, A Renaissance for US Trade Policy? Foreign Affairs

November/December 2002 .2 For a very useful detailed context of competitive liberalization, see C. Fred Bergsten,Competitive Liberalization and Global Free Trade: A Vision for the Early 21 st Century,Working Paper 96-15, Institute for International Economics,1996.


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The US has engaged in bilateral and regional FTA negotiations with over150 countries in an aggressive pursuit of its interests. 3 In justifying

publiclyoften ex postits FTAs, US government officials have articulated

a series of national interests that fall within four categories 4:(1) Asymmetric reciprocity that advantageously opens markets for US

traders and investors: Once in the FTA game, the US is quite aware ofthe asymmetries of market power and issue salience that enhance US

bargaining leverage.(2) Establishing precedents, models or serving as catalysts and benchmarks

for broader trade agreements;(3) Rewarding and supporting domestic market-oriented reformers and

advancing democratic institutions: the US has been pursuing a variety of

commercial and diplomatic interests, both tactical and strategic, whichinclude bolstering local democratic institutions and processes ofeconomic reform, strengthening US security ties; and

(4) Strengthening strategic partnerships by allying with a regional leader. No doubt, these proclaimed motives go beyond cost-benefit calculationof trade liberalization, and connote the dynamics of strategic, sequential

bargaining in multiple forums. Trade is used as an instrument toinfluence the balance of power within states and affect processes of

political and economic change. 5

The US is currently pursuing unilateral, bilateral, regional, and global tradeagreements, to be negotiated simultaneously or to be seen as potentiallycomplementary and mutually reinforcing. President Bushs chief trade

3 Jagdish Bhagwati, US Trade Policy: the Infatuation with Free Trade Areas, in The Dangerous Drift to Preferential Trade Agreements , ed. Bhagwati & Anne O. Krueger(Washington, D.C., American Enterprise Institute for Public Policy Research,1995).4 Richard Feinberg, The Political Economy of United States Free Trade Arrangements,

paper prepared at the conference of Bilateral Trade Arrangements in Asia-Pacific Origins,Evolution and Implications, University of California, Berkeley, 21-22 March 2003.5 Edward D. Mansfield. and Helen V. Milner, The Political Economy of Regionalism (NewYork, Columbia University Press,1997).


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policy-maker, USTR Robert Zoellick, articulated a trade policy orchestratedaround competitive liberalization, in which global, regional and bilateraltrade negotiations would complement and reinforce each other. 6 He said,

each of these stepping stones will ultimately lead to a trading system thatcreates sustainable prosperity for America, our main trading partners, and theworlds developing nations. 7

In bilateral and regional negotiations, the Bush strategy has been to create acompetition in liberalization among US trading partners so that tradereform in one market begets similar reductions in other markets. Free trade

promotes economic growth and the rule of law, and strengthens thefoundations of democratic governance. Open trade reinforces the habits

of liberty that sustain democracy over the long term is the way PresidentBush has summarized one of the main tenets of US trade policy. Soon afterthe conclusion of the Canada-US FTA, and the NAFTA, a number of UStrading partners sought to negotiate comparable pacts with the US or toaccede to the NAFTA. 8

At times, FTAs have been useful as part of a bargaining strategy designed toenhance US leverage in global negotiations, as with the Canadian andMexican accords. Decisions to initiate negotiations have sometimes been

taken to fit into a sequence of regional talks, as when the US told eagerAndean nations that they would have to wait for the conclusion ofnegotiations with the Central Americans. At times, the pace of a nations

6 Robert Zoellick, Free Trade and Hemispheric Hope, Remarks before the Council of theAmericas, Washington, D.C., 7 May 2001; and The United States, Europe, and the WorldTrading System, Remarks before the Kangaroo Group, Strasbourg, 15 May 2001. 7 Robert Zoellick, The Reigning Champions of Free Trade, Financial Times , 13 March2002, p.13.8 Jeffrey J. Schott, Understanding US Trade Policy: Circa 2001, paper prepared at theInternational Affairs Institute, Rome, Italy, 18 October 2001.


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domestic reforms has mattered.

The US has from time to time justified its unilateral trade action as a given by

pointing to some factors: (1) surging US trade deficit, running a $427 billiontrade deficit in 2001, for instance; (2) a continuing strong US dollar that fuelsexport-led growth globally and leads to unprecedented flood of imports intoUS markets; (3) massive bankruptcies and loss of jobs in the US; (4) WTOsafeguard measures enabling countries to cope with such disruptions byunilateral actions. The US imposed a 3-year steel bill with high tariffs forimported steel products in March 2002, for instance, with similar lines of

justification, although the WTO ruled against the US action in November2003, after all. The three-year period was meant to give US steel-makers

time to restructure, reduce excess capacity and increase productivity. At thesame time, the US utilized the unilateral approach to reward partners, whichextend reciprocal market access, including NAFTA members, Russia, andBrazil. 9

Almost 30 years ago, Richard Cooper wrote a prescient article in the journal,Foreign Affairs , entitled, Trade Policy if Foreign Policy. Economic aidand economic sanctions are to be used to promote good relations or to coercegood behavior from foreign governments. In 1979, the Congress moved

most trade functions of the State Department to the Commerce Department toemphasize that business should not pay for foreign policy measures. At thesame time, however, members have put forward legislation limiting US tradewith or financial assistance to countries that violate specific norms of good

behavior such as human rights abuses, proliferation of weapons, and drugtrafficking.

9 Robert Zoellick, The Reigning Champions of Free Trade, Financial Times , 13 March2002, p.13.


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Applications of US Trade Strategy

In its seminal report issued in 1991, the US Tariff Commission advocated a

policy of non-discrimination and equal treatment of all trading partners, butallowed for exceptions where there were special political ties and whereone country has a long line in common with another (US Tariff Commission1919). The US trade policy since the post-World War II until the 1990sfocused on multilateral trade negotiations. It always perceived that the freeglobal market would be good for the American people. For instance, acomplete free global market for agricultural products would result in gains ofas much as $13 billion a year for American farmers and consumers.Lowering global trade barriers on all products and services by even one-third

could boost the US economy by $177 billion a year, and raise living standardsfor the average family by $2,500 annually. 10 The US played a key role in alleight rounds of trade talks under the General Agreement on Tariffs and Trade(GATT), and was the chief advocate of the GATTs principles of universalismand non-discrimination. 11 As the worlds leading trading nation, the US hassubstantial interests in the successful launch of new multilateral tradenegotiations. Global trade reforms provide the biggest bang for thecorporate bottom lines. Even partial liberalization of existing trade barrierswould yield global welfare gains ranging from $400 billion to $600 billion. 12

The 1980s, there were two exceptions to the US exclusive commitment toglobalism: the free trade accords with Israel in 1985, and Canada in 1988.Both were labeled as special casesIsrael as an isolated strategic ally with a

10 President George W. Bush, Open Trade Is Not Just an Economic Opportunity, It is a MoralImperative, The White House Press Release , 6 August 2002.11 Gary C. Hufbauer, and Jeffrey J. Schott,Strategies for Multilateral Trade Liberalization,in Trade Strategies for a New Era: Ensuring US Leadership in a Global Economy, ed.Feketekuty, Geza, with Bruce Stokes (New York,Council on Foreign Relations and theMonterey Institute of International Studies,1998),125-141.12 The higher figure, based on a one-third reduction in global barriers to goods and services,was cited in a speech by WTO Director General Mike Moore in Interlaken, Switzerland, on 5July 2001.


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strong domestic political lobby; 13 and Canada as a contiguous nation closelytied to the US economy through intra-industry trade and investment patterns.The next exception was Mexico, again justifiable on grounds of geographic

proximity. With the formation of European Union, and the preemptiveapproach to a fortress Europe, an alarming sense of urgency seemed to take

place with the idea to form a NAFTA, APEC, and FTAA to counter-balancethe development of a unifying Europe, however far-fetched it seemed.

The free trade agreements (FTA) became a flood in the early years of theClinton Administration. In November 1994, the US joined with the otherAsia-Pacific Economic Cooperation (APEC) member economies to achievetrade and investment liberalization by 2010 for the developed economies and

by 2020 for the developing economies. Within weeks, in December 1994,the US, at the Summit of the Americas, joined with 33 other WesternHemisphere nations to pledge for negotiating a Free Trade Area of theAmericas (FTAA) by 2005. These have served as catalysts for a fall-backapproach and somewhat set the stage for a successful conclusion of theUruguay Round in December 1994. 14

The rush to regionalism soon was joined by a gradual slippage into bilateralism. 15 At the Miami Summit, the three NAFTA partners

announced their intention to negotiate the admission of Chile, as a first steptoward expanding NAFTA into the hemisphere-wide FTAA, negotiations thatmorphed into bilateral talks. However, this innovative surge in US trade

policy was stalled by domestic opposition within the presidents own political

13 Howard Rosen, The United States-Israel Free Trade Agreement: How well Is It Workingand What Have We Learned?, in Free Trade Areas and US Trade Policy, ed. Jeffrey J. Schott,(Washington, D.C.: Institute for International Economics, 1989),97-119.14 Bergsten, C. Fred,Competitive Liberalization and Global Free Trade: A Vision for theEarly 21 st Century, Institute for International Economics Working Paper 96-15,Institute forInternational Economics, http://www.iie.com/publications/wp/1996/96-26.htm15 Anne O. Krueger, American Trade Policy: A Tragedy in the Making(Washington D.C., theAmerican Enterprise Institute,1995).


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party. Congress passed the Uruguay Round legislation, but refused toextend fast-track authority needed to drive the FTAA forward, or to completethe promised NAFTA-Chile accord. In 2000, the Clinton administration

negotiated an uncontroversial second Middle East FTAwith Israelsneighbor, Jordan. In the closing days of his term, Clinton acceded to aSingaporean initiative to open negotiations on an FTA.

Trade Promotion Authority: Catalyst to FTA NegotiationsThe Bipartisan Trade Promotion Authority Act of 2002 enacted by the USCongress was a watershed for the US President to end the 8-year lack of thefast-track authority to conclude trade agreements with a simplified ratification

procedure. 16 In this legislative procedure, Congress sets formal negotiating

goals for major trade agreements and agrees (1) to vote on the results of thenegotiations and the proposed implementation of legislation, and (2) to voteonly on the agreem ent as a whole, to do so without amendments and within alimited time period. President Bush has used the new Trade PromotionAuthority (TPA) to pursue a parallel track of preferential and multilateraltrade negotiations.

The TPA has provided an impetus to concluded bilateral trade agreementswith Chile and Singapore, and to pending bilateral trade negotiations with

Australia, Morocco, SACU (five African nations), CAFTA (five CentralAmerican nations) 17, EAI (Enterprise for ASEAN Initiative) 18, and more bilateral FTA partners to come. In addition to the geographically dispersed

16 Lenore Sek, Trade Promotion Authority (Fast-Track Authority for Trade Agreements):Background and Developments in the 107 th Congress, Issue Brief for Congress (Order CodeIB10084: Updated 14 January 2003).17 The South African Customs Union (SACU) encompasses South Africa, Botswana,

Namibia, Lesotho and Swaziland. The US-Central American Free Trade Agreement(CAFTA) will be negotiated with Costa Rica, El Salvador, Guatemala, Honduras and

Nicaragua.18 The USTR plans to create, under the EAI, a network of bilateral FTAs between the US andindividual ASEAN countries, which are also currently engaging bilateral FTA arrangementswithChina. For EAI, see http://www.whitehouse.gov/news/releases/2002/10/20021026-7.html .


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bilateral agreements that target Asia, Africa and countries in South America 19,the negotiation to conclude the Free Trade Agreement of the Americas (FTAA)among all 34 countries of the Western hemisphere in 2005 are also

progressing on the front of regional trade negotiations. 20

Although the US has been reactive to the proposals of its trading partners, ithas not been indiscriminate. The US has deflected overtures from NewZealand, preferring to give preference to Australia, a more loyal ally onforeign policy. The US turned aside a Taiwanese request for an FTA sincesuch an accord would antagonize China and therefore not serve US securityinterests. The US simply demanded from Taiwan as prerequisite for anyFTA discussion: a well enforced IPR regime, rather than treating IPR issue as

one of the FTA negotiation agenda items. The US has also declined arequest from Uruguay, in order not to split Mercosur and antagonize Brazil.Furthermore, New Zealand, Taiwan and Uruguay are not regional leaders.Subtle hints launched by the Japanese have emerged, as US commentatorsquestioned whether Japan is ready for a comprehensive, WTO-consistentagreement that would include such sensitive sectors such as agriculture.Similar concerns have deflated talk about a US-Korea accord. WhenASEAN broached the idea of an FTA, the US responded by offering to firstnegotiate a framework agreement, signaling that it would not accept a

least-common-denominator approach to accommodate ASEAN laggards,rather it would maintain high standards in its FTAs. It seeks instead toweave a network of bilateral FTAs with ASEAN members, when they areready.

19 For the phenomenon of preferential trade agreements that increasingly transcend regional borders, see

20 Atsushi Yamada, Between Regionalism and Multilateralism: New Dilemmas in US TradePolicy, APEC Study Center Working Paper Series 01/02 No. 5, Institute of DevelopmentEconomies, JETRO, http://www.ide.go.jp


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US-Canada FTA in 1988In 1985, a Royal Commission report strongly recommended that Canadanegotiate a bilateral FTA with the US, and Prime Minister Brian Mulroney

took advantage of his ideological affinity and friendship with PresidentRonald Reagan to transform the Commission recommendation into policyaction. The reasons for Canadas interests include the following:(a) An FTA with the US would serve as a stimulus for domestic reform,

including reducing the scope of government and revitalizing the privatesector;

(b) An FTA would enhance security of access to the market of overwhelmingimportance to the Canadian economy; and

(c) The FTA would reduce certain barriers to Canadian products and

stimulate the growth of new competitive industries.

The US-Canada FTA accord in 1988 served as a useful lever in the ongoingGATT negotiations, as a warning to Japan and the European Community thatthe US might pursue alternative approaches if multilateralism failed to delivertangible benefits. The Canadians concurred with practices regardingintellectual property rights, trade-related investment policies and government

procurement that the US wishes to serve as models for the GATT. The USalso welcomed reductions in Canadian tariffs and disincentives to foreign

investment.

US-Mexico FTA and NAFTA in 1992President Carlos Salinas de Gotari, after ascending to the presidency, agreedto his compatriots view that Mexico could lessen its dependency on the USmarket by diversifying its economic relations by strengthening commercialties with East Asia and Western Europe. However, his travels to theseregions had proved that the aspiration was rather unrealistic. As a realist,Salinas decided to reverse the course by proposing FTA talks with the US

As with Mulroney, Salinas objective was to see an international trade accord


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as an instrument for legitimizing and locking in domestic market-orientedreforms. With guarantees against ever-present US unilateral protectionistimpulses and easier access to the US market for Mexican exporters, Salinas

proceeded with enthusiasm. Most importantly, Salinas saw the advantagesof an FTA as a means of creating a business climate more conducive toforeign investors from the US and other countries which would use Mexicoas a stepping stone to export into the US market.

The Bush administration welcomed a better southern neighbor with a moremarket-oriented, outward-looking and competitive Mexican economy. Oncethe negotiations started, the US was reminded of Mexicans weaker position,and was not shy to use its negotiating leverage. Bush and Clinton did not

hesitate to insert into the NAFTA and related accords their wish lists, particularly in the areas of investment and services, as well as on labor rightsand environmental protection. The Mexican negotiators, though balking attimes, could not but accede to the latest US demands. Thereafter, the USwould point to the NAFTA as a model for other prospective trade accords.

The Free Trade Area of the Americas (FTAA) 21 Prior to the completion of NAFTA, the leaders of the Andean countries urgedGeorge Bush to consider a post-Cold War economic policy toward the region

that yielded the Enterprise for the Americas Initiative (EAI), a forerunner ofthe FTAA. Chile has pressed three successive US administrations (Bush,Clinton, G.W. Bush) for an FTA. It was Latin Americans who proposed a

post-NAFTA meeting of hemispheric leaders to extend the spirit of NAFTAsouthward. They insisted that the key message for 1994 Miami Summitwas for a free trade pact, and cornered the US into accepting a firm end datefor negotiations.

21 For detailed discussion, see Richard E. Feinberg, Summitry in the Americas (WashingtonD.C., Institute for International Economics, 1997).


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As a consequence of the 1980s debt crisis, among other factors, LatinAmerican economies have adopted a more outward-oriented growth strategy,and their own regional integration models have shifted from inward-looking

and protective to forms that couple domestic liberalization with openregionalism. Latin Americans have felt that an FTA with the US wouldattract more investors and a warmer and more predictable business climate.As Salinas articulated, an FTAA with the worlds greatest capitalistdemocracy would help to lock in market-oriented macroeconomic reformsand focus national policy debates on means to achieving internationalcompetitivenessincluding further market liberalization, effective regulationand competition policies and modern infrastructure in, for instance,telecommunications, energy and transportation. 22 Latin American trade

strategists saw another advantage in an FTAA: the chance to gain guaranteedaccess to the worlds largest and most dynamic market that they could nothave extracted from GATT negotiations.

Historically, the notion of North-South trade alliances in terms of hemisphericintegration has not fared well. The blue-green coalitionlabor unions,environmentalist and other critics of globalizationhave joined withtraditional industrial and agricultural protectionists to question that the

North-South alliances would weaken US competitiveness in the face of low

wages in developing countries, and alleged races to the bottom in social policy.

However, there were those in US administrations who were in favor of pursing an FTAA for several reasons:

(a) The increasing trade and investment relationship would be enhanced withan FTAA which would render lower tariff and other non-tariff barriers,

22 Jose M. Salazar-Xirinachs and Jose Tavares de Araujo, Jr., The Free Trade Area of theAmericas: A Latin American Perspective, World Economy 22,6 (August 1999): 783-98.


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eliminate or reduce some bothersome regulations and increase predictability and transparency;

(b) There is a perception that an FTAA could maximize the enormous

US-Brazilian trade potential. 23 (c) An FTAA was an offensive and defensive measure. In reaction to

NAFTA, the European Union had signed an FTA with Mexico andsought to negotiate with Brazil and Mercosur (Brazil, Argentina,Paraguay and Uruguay). Latin American nations were also negotiatingFTAs among themselves at an alarming pace.

(d) The US rhetoric linking free markets and free societies takes on concreteform in Latin America. It was an overriding concern of the US tostabilize Latin Americas fragile representative political institutions.

(e) The US expects some positive spillover effects on a range of cross-borderissues of common concernfrom counter-terrorism to counter-narcotics,environmental protection to energy cooperation.

(f) The US could use FTAA to strengthen its negotiating power at otherregional forums or WTO talks, including forging alliances with FTAA

partners in the Doha Round negotiations.

US-Singapore FTAThe US-Singapore FTA is considered by the US as cutting-edge since it is

comprehensive in scope--including telecommunications, e-commerce, digitalIP protection, covering broad services liberalization with strong investmentand IP protection, and an innovative dispute settlement mechanism. TheUS-Singapore FTA emphasized improved access to service sectors in both theUnited States and Singapore; development of mutually acceptable standardsfor licensing and certification of professional service providers, in especiallyarchitecture and engineering; and increased protection for intellectual

property rights in both countries, including through Singapores accession to

23 Jeffrey J. Schott and Gary C. Hufbauer, Whither the Free Trade Area of the Americas?,World Economy 22, 6 (August 1999): 778-82.


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WIPO (World Intellectual Property Organization) treaties on copyright protection and stronger government measures against circumvention ofinternational copyrights. 24 An interesting aspect is the provision of the

Integrated Sourcing Initiative which applies to components produced innon-sensitive, global sectors, particularly IT and certain medical devices, onwhich both countries do not impose tariffs. These components, includingabout 100 IT products, will be treated as being of Singaporean origin whenthey are used in the manufacture of final products in Singapore. Forexample, qualifying IT components manufactured on the Indonesian islandsof Batam and Bintan and exported to the US in products assembled inSingapore would be categorized as being of Singaporean origin 25. TheUS-Australia FTA is meant to be comprehensive in scope and solidify

commercial relationship with a security alliance, although it may take longerthan expected due to the competitive nature of the agriculture sector.

Enterprise for ASEAN Initiative (EAI)In November 2002, the US announced the Enterprise for ASEAN Initiative(EAI) as a roadmap for ASEAN members, in addition to Singapore, to

pursue an FTA with the US Some analysts have suggested that theASEAN-minus-4 (ASEAN-4)-- with the four new members of CLMVcountries excluded (namely Cambodia, Laos, Myanmar, and

Vietnam)would enjoy substantial economic gains from individual freetrade agreement with the US. 26 To date, Thailand has expressed thestrongest interest in pursuing an FTA with the US, and along with Indonesiaand the Philippines, has followed the EAI roadmap by signing a Trade andInvestment Framework Agreement (TIFA) with the US. A TIFA establishes

24 Tommy Koh, US-Singapore Free Trade Agreement, Speech organized by the Institute ofPolicy Studies, American Chamber of Commerce, and Foreign Correspondents Association,Singapore, 25 February 2003 .25 Hadi Soesastro, Ibid.26 Dean A. DeRosa, 2003 US Free Trade Agreements with ASEAN, paper prepared at theConference on Free Trade Agreements and US Trade Policy, Institute for InternationalEconomics, 7-8 May .


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a joint council of senior US and partner country officials who seek to identifyand discuss ways to eliminate regulatory barriers to trade and foreigninvestment between the two countries, largely as a precursor to negotiating a

US FTA.

The ASEAN Free Trade Area (AFTA) has pledged to reduce tariffs onintra-block trade in substantially all goods (including primary agriculture) tothe range of 0-5 percent by 2003, but with exceptions for important sensitivesectors in each country (e.g., autos and auto parts in Malaysia). The recentslow momentum, however, of both APEC and WTO, to which ASEANcountries belong as well, has led ASEAN policy makers to entertainalternative possibilities. These possibilities include establishing FTAs with

not only the US under the EAI, but also with other major trading partners inthe Asia-Pacific region, such as ASEAN + China, ASEAN + Japan, ASEAN+ Korea, and ASEAN + 3 (APT), etc.

An emerging China has certainly stirred up salient debates as to whetherChina constitutes a threat or an opportunity for ASEAN. As the superlabor-abundant, low-wage country in the world, China has attracted anenormous share, between 20 to 30 percent, of foreign direct investment indeveloping countries during the 1990s, and is increasingly the major

competitor of ASEAN producers in global export markets for basiclabor-intensive manufactures. With China, Japan, and Korea, termed asASEAN Plus Three (APT), the ASEAN countries are interested in gaining

preferential access to Chinas potentially large market for goods and services,especially for higher-valued products in which producers in China are not yetinternationally competitive and in which ASEAN producers are increasinglylooking to specialize, in line with their increasing labor costs and increasingskilled workers.

However, the potential economic gains from an FTA with the US might bemore advantageous because of the greater economic size of the US than


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China at present, and the greater disparity in labor wage rates and skill levels between the ASEAN countries and the US than between the ASEAN andChina. US interest in pursuing FTAs with the ASEAN countries might be

ascribed to similar economic and geopolitical motivations as described earlierwith respect to an FTAA.

Commitment to Global Liberalization & WTOOn the global liberalization fronts, the US has played key roles by building invarious issue agenda into the negotiation rounds 27 high-tariff reductionduring the Kennedy Round vis--vis the European market; non-tariff barriers,government procurement, and subsidies, etc. during the Tokyo Roundvis--vis expanded European market, the behind-the-border issues (such as

Intellectual Property Rights and services rules) during the Uruguay Roundwith the mobilization in NAFTA and APEC; and agriculture as well as theSingapore issues (Investment, trade facilitation, competition policy andtransparency in government procurement) during the Doha DevelopmentRound vis--vis the G23.

Limitation of Competitive Liberalization

(1) Unilateral trade actions could generate the retaliatory unilateral actions of

others.

US commitment to liberalizing its own well-entrenched trade barriers isof great concern in the global community. US unilateral action, such asimposing protection on steel is not only damaging in itself but far more soas a precedent for similar actions by others. Agriculture is the worstexample of protection, with the textiles and clothing sector a close second.The new farm bill and steel import safeguards, coupled with

27 John Gerald Ruggie, Multilateralism Matters: the Theory and Praxis of an InstitutionalForum , (New York, Columbia University Press, 1993).


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Congressional demands to strengthen US anti-dumping laws, provokeskepticism around the globe about the US willingness to open theirmarket to foreign competitors. The ambitious agricultural proposal

submitted by the US to the WTO during the Doha negotiations so far,after the unilateral farm bill, seemed only hypocritical to some. Byraising the threshold unilaterally in advance, and coming tothe negotiation table daggling a carrot to lower the denominator mayappear to some as merely a laughing stock. Whether other countries seeeye-to-eye with the US in its competitive liberalization approach andare willing to jointly play the game positively remains to be seen.

(2) The Effects of FTAs toward a Positive Construction of Globalization:

Notwithstanding positive elements of FTAs, there may be some possiblefragmentation of the wide-spread FTAs. It may disrupt basic unity andcreate potential combined leverage in external relations vis--visother-block partners and non-members; for instance, the EAI betweenASEAN and the US may antagonize relations vis--vis China, otherAPEC members, and even the Cairns Group and WTO. Whether suchfragmentation is a real prospect remains uncertain. However, iffragmentation is possible, then the ASEAN, for instance, might do well to

jointly approach the US about negotiating a common FTA rather thanmany bilateral FTAs. This approach might even extend such a

prospective agreement to bilateral trade and investment amongthemselves, essentially forming a US-ASEAN free trade and investmentarea. Furthermore, the prototype could be extended to other FTA

partners of the US and ASEAN, thereby serving a building block toharmonize global system.

(3) The Non-Inclusive Nature and the Treatment of Outsiders

As pointed out earlier, the US is not always responsive to other countries


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requests for negotiating an FTA. This creates a moral hazard of its own,and creates a sense of grievance from time to time. How does USreconcile with the proclamation that an FTA would be good to reward a

democratic system on the one hand, and the strategic consideration todecline a democratic systems request for an FTA, for instance? Thereis great uncertainty in whether the pursue of FTAs with some countriesand simultaneously diverting exports of excluded countries wouldactually lead more successfully to a smooth conclusion of the DohaRound. That is, could we really count on the negative reaction to thetrade and welfare loss imposed by FTAs on major countries in the globaltrading system, such as China, Japan, and the European Union? Couldwe count on the effectiveness of competitive liberalization, or are we

merely to witness competitive confusion to borrow Hadi Soesastrosterm?

Challenges ahead for US Leadership

(1) Hard-Power Unilateralism vis--vis Soft Power Multilateralism?

Underlying the current US leadership is unilateralism, driver of proliferatingFTAs, and its commitment to multilateralism. US unilateralism is perceived

by most as short-sighted and that a systematic turn to unilateralism will havegrave consequences for international order. 28 Despite the disputableunilateral action, the US has insisted that it is entitled to impose unilateraltariffs on steels as a safeguard measure to cope with the disruptive flood ofimports into the US markets. 29

The unilateralism that the US is practicing often connotes the controversial

28 David M. Malone, and Yuen Foong Khong, Unilateralism and US Foreign Policy: International Perspectives (Boulder, Lynne Rienner, 2003).29 Robert Zoellick, The Reigning Champions of Free Trade, Financial Times , 13 March2002.


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just if icat ion of combin ing trade, human righ ts , democracy, andcounter-terrorism altogether. The recent controversy regarding the politicsof oil in the post-Iraq war reconstruction is a case in point. After all, to use

trade as a tool for coercing compliance to other American interests in a giventime, but often in an inconsistent manner, may erode the US leadership role inthe long run.

The illusion that the binding relations between the United States and Europewould continue due to the binding communal interests and values has now

been brought into question. The sharp distinction lies in the all importantquestion of power. Americans believe that world order ultimately rests onmilitary power; whereas Europeans, by contrast, are wedded to a vision in

which an orderly world is constructed on the basis of international law andmultilateral institutions. 30 Can the US sustain its leadership role in theeyes of nations in the wake of its institutionalization and reformation of themultilateral mechanism?

(2) Ensuring the FTAs as Building Block rather than Stumbling Block?

As the US has somewhat successfully played the card of competitiveliberalization and the game play has become universalized, there are many

substantive trade negotiations under discussion, which precludes the USleadership role. 31 The challenge is to assess the extent of success in themaking of competitive liberalization.

If FTAs are to serve as building blocks to multilateral free and open trade,some key requirements should be seriously considered.

30 Such as, Robert Kagan, Of Paradise and Power: America and Europe in the New WorldOrder (Atlantic Books, 2003).31 C. Fred Bergsten, American Trade Leadership and the Global Economic System, MemoOne in Future Visions for US Trade Policy, (Washington, D.C, The Brookings Institution Press,1998), 26-37.


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(a) They must be made genuinely open to further accession rather thantailor-made to particular sets of interest; and/or

(b) They should contain specific provisions, which ensure that the benefits

are subsequently extended on a MFA basis.(c) Other important provisions include harmonization of and the adoption of

common Rules of Origin (ROO) methods, which are simple, liberal andtransparent. 32

(3) Negotiated Approach as a Logical Best Alternative?

The challenge of a successful Doha Development Round would very muchhinge upon the US willingness to accedeeventually and grudginglyto

developing-country demands on many fronts. In Mike Moores term, thedeal-maker or deal-breaker is agriculture, and without US support, the newround would have gone nowhere. 33 With the unilateral devices of the farm

bill and steel bill before the Cancun negotiation on Doha Round, no wonderthere is no lack of skepticism over US sincerity, in that The United Stateswants to open global market across-the-board, to expand a virtuous circle oftrade and economic growth for developing and developed economies that canstrengthen one another. 34

In the context of APEC, the somewhat rebellious approach against therule-based voluntary, peer-pressured, consensus-building mode of operationhas often been chided as ineffective and meaningless. 35 Nevertheless, inorder to forge a sustainable sense of community, a somewhat loosely

32 Hadi Soesastro, 2003 Dynamics of Competitive Liberalization in RTA Negotiations: EastAsian Perspectives, paper presented at the PECC-LAEBA Conference on Regional TradeArrangements in Comparative Perspective, Washington D.C., 22 April 2003.33 Mike Moore, A World Without Walls: Freedom, Development, Free Trade and GlobalGovernance (New York,Cambridge University Press, 2003).34 Robert Zoellick, Trade Wins, Asian Wall Street Journal, 8 September 2003.35 Mignonne Chan, APECs Concerted Unilateralism: Faith or Fallacy? paper presented atthe APEC Study Center Consortium Conference, Thailand, 25-27 May 2003.


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structured and seemingly ineffective mechanism may be worthwhile. 36 Finally, the challenge remains for the US in harmonizing civilizations in thequest for modernityin growth and development.

(4) Building towards a Doha Development Round?

If the ultimate goal of trade and investment liberalization is to promoteeconomic welfare, human prosperity and world peace, open markets inadvanced countries are very important. One fifth of the worlds people aredestitute, and the development agenda for Doha Round is even more urgent.The Cancun Ministerial Meeting did not succeed in its agriculturalnegotiations, where many resented the ill-consideration towards the

development clich. In 1999, agricultural support by members of theOrganization for Economic Cooperation and Development was more than sixtimes official development assistance, with half of the total of $361 billion bythe European Union and another 39 percent by Japan. In 1999,development assistance averaged a mere 0.24 per cent of OECD grossnational product, with the US on just 0.1 per cent. 37 The developmentrecord is not a failure but a partial success. If the world is to do still better,it must provide a supportive international environment, plus more aid forthose who need it most and can use it best. The US could perhaps take the

lead in eliminating unilateral actions, building capacity for efficient policy,institutionalizing anti-corruption against brutal leaders, and negotiating acomprehensive well-balanced Doha development round.

In summation, based on the assumption of the competitive liberalization,the US, the US continues to be engaged in unilateral, bilateral, sub-regional,regional, and global actions and FTA negotiations. The challenges that

36 Mignonne Chan, Community Building in the Context of Development andGlobalization, paper presented in the 16 th Pacific Economic Community Seminar, Taipei, 7December 2001.37 Martin Wolf, Making Aid a Better Investment, Financial Times , 13 March 2002.


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the US faces includes not only the moral persuasion on positive effects of thecompetitive liberalization approach towards globalization, but also theactual practice of symmetric reciprocity, unified standard of linking politics

with economics, respect for multilateral institutions, confidence-building, andgenuine commitment to a mutual benefits.

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