A New Trade Policy for the Americas

For those of us who believe that broad-based economic development in the Americas depends directly on expanding trade and investment, the challenge is to ensure that existing agreements such as NAFTA and the agreements with Chile, Central America, Peru, and others not only work but are seen to work by a majority of our citizens, while at the same time building momentum for additional moves to expand trade and investment in the hemisphere. Essentially, these are political questions, which bleed into fundamental domestic issues such as education policy, worker training and benefits, healthcare and the like, not just in our own country, but in our trading partners’ as well. They are vexing issues to address even when times are good. But as the U.S. economy turns toward recession, unemployment and inflation both rise, and the possibility of stagflation raises its ugly head for the first time since the 1970s, efforts to expand trade with other developing nations is an even more difficult sell.

As a result, it’s a near certainty that whomever is elected President in November will pursue other priorities in their first 100, or even 1,000, days. There may be exceptions, of course, including re-authorization of fast track which lapsed last summer, or perhaps conclusion of the Doha Development Round of global trade talks. But initiatives for the Americas such as launching new trade negotiations with individual nations are likely not in the making. Yet, with the next Summit of the Americas set for April 2009 in Trinidad, barely three months after the presidential inauguration, the new president, should s/he decide to attend, will be pressed to bring something to the table that is both politically realistic and strategically and economically meaningful. That’s a tall order, and actions to lay the groundwork must begin now.

To be sure, as a first priority it is imperative that we conclude the steps that are clearly before us. Now that the trade and investment expansion agreement with Peru has been overwhelmingly adopted by Congress, it is also essential that pending trade agreements with Colombia and Panama be brought up and passed. Refusing to act on these agreements, or worse, voting them down, would be an unnecessary setback of historic proportions for U.S. policy interests in the Americas and would send the next President to the 2009 Summit empty-handed and weakened in hemispheric policy. Think what would have happened at the 1994 Summit of the Americas in Miami, for example, had President Clinton not been able to conclude NAFTA immediately beforehand. The Summit agenda would have been hollowed out before it began.

It’s true that the Colombia agreement in particular is controversial—not on trade and economic grounds, ironically, but rather on social development and human rights grounds. While barely acknowledging the tremendous progress made in Colombia, opponents of the agreement nonetheless call for additional, unspecified “steps” that must be taken before they will consent to support it. At the same time, supporters of the agreement argue that delay is as bad as defeat, because continued delay weakens a strong U.S. ally even as the opponents of U.S. policy in the hemisphere—and there are many—seek to take advantage of the vacuum for their own ends.

A path forward must be found. One potential approach would be to strike a compromise whereby the U.S.-Colombia trade agreement could be voted on and passed this year, with entry into force delayed until the next president takes office, and until such time as the new president has certified that certain realistic and appropriate conditions have been met. The precedent for delaying entry into force already exists. In fact, despite its passage by Congress two and a half years ago, CAFTA-DR has still not fully entered into force, given certain legal and technical conditions that remain to be met. The Panama Canal Treaties are another example. And, so long as provisions are fair, transparent, and can be accomplished with certainty, there’s no particular reason that entry into force of the agreement with Colombia cannot take into account broader issues.

Taking such actions would encourage opponents of the agreement to articulate their specific concerns in a manner that the government of Colombia could address without fear of constantly moving goalposts, and it would ensure that the certification of results would occur under a new Executive, thus addressing the bi partisan mistrust that currently exists in Washington. In doing so, a path could be made clear to an actual vote on the agreement this year, thus addressing concerns of those who suggest that delaying a vote is a victory for Hugo Chávez.

But beyond these important agreements, we should also reconsider the overall strategy of competitive liberalization where by the United States negotiates agreements with countries one by one in Latin America and the Caribbean. As currently practiced, this strategy requires Congress to take sequential, ever more difficult votes on agreements that may have critical foreign and security policy implications but which lack the significant economic and commercial stakes that would fully mobilize the private sector like NAFTA or China PNTR. As well, such a patchwork policy of trade liberalization often fails to capture and expand trade and investment flows among our trading partners themselves, a potent force for broad-based economic development. In any event, as a practical matter there just aren’t that many nations left in the Americas which would want a bilateral trade deal with the United States, and only one—Brazil—which could fully mobilize the U.S. private sector in support.

Ideally, we would still be moving toward a hemispheric free trade agreement built by consensus as first agreed at the 1994 Summit. But that vision proved to be a bridge too far, and as the idea became significantly more controversial in Venezuela, Argentina, Bolivia, Brazil, Ecuador, and elsewhere, the United States sought to maintain progress by negotiating and concluding individual and sub-regional agreements. Such actions, it was argued, would also put pressure on other nations to come back to the negotiation table.

As the largest Latin American economy and market, Brazil should be our primary interest in further regional trade expansion.

But the way to get the Brazilians to the table is not to isolate them or try to surround them with a virtual free trade area, as the proponents of competitive liberalization urge. Rather, a much better approach would be to launch a process with other nations, both in and outside Latin America, that creates economic stakes which are too significant to ignore.

Specifically, once the agreements with Colombia and Panama are passed, we should then look to harmonize existing regional trade agreements, including NAFTA, DR-CAFTA, US-Chile, and Colombia, Panama, and Peru, to bind together our trade partners, create larger markets, shorten supply chains, simplify the rules of trade and investment, and build a larger stepping stone to an eventual hemispheric trade association. We can do this, for example, by taking a clear-eyed, comprehensive look at rules of origin provisions, with a view toward unifying and perfecting them.

But we should not stop there. The United States and many of our hemispheric free trade partners also have existing or potential free trade agreements with various nations in the Asia-Pacific region, including Australia, Korea, and Singapore. By stitching together our free trade partners in the Western Hemisphere along with such partners in Asia, we have the opportunity to build a pan-Pacific trading zone among those parties most interested in collaborating to promote mutual economic growth, and where economic growth has been the most dynamic. The United States is already exploring discussions with the P4, for example (Brunei, Chile, New Zealand, and Singapore), and such discussions should be pursued with intensity. A free trade zone encompassing North America, Central America, and the west coast of South America, with free trade partners in Asia, would generate new momentum to the trade expansion agenda by advancing liberalization more quickly with willing partners. It may or may not be feasible. But it should be carefully explored as a priority.

Ultimately, there are many roads that lead to Rome. And even as the political season is upon us in the United States and the economy softens, we should continue some hard thinking about the trade agenda and where we go from here. The politics of trade expansion may soon require a pause, but the thinking about trade should not.