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Trading Places

Prepared by: Robert McMahon, Editor
June 13, 2006

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New U.S. Trade Representative Susan Schwab has vowed not to give up (Dow Jones) on the World Trade Organization's Doha round of talks despite the prevailing sense of gloom. But even as Schwab and her global counterparts prepare for another round of tough talks this month in Geneva, some see signs that the United States and a growing number of nations are more committed to other options for expanding trade.

The alternative of choice is the FTA, or free trade agreement. After ceding the field to Europe for decades, the United States is embracing FTAs with an unprecedented fervor. Congress has approved nearly a dozen of the deals during the Bush administration, three more are up for consideration, and many more negotiations are underway. As this new Backgrounder explains, the policy reasons go beyond economics. To be sure, the deals also involve preferential treatment for U.S. businesses on investment and intellectual property that exceed what's possible in the 149-member WTO. That has aroused concern among some economists. CFR Senior Fellow Jagdish Bhagwati, one of the most prominent critics of such deals, told a Council meeting last year that Washington was taking a heavy-handed approach to such negotiations. "You get a little country by itself in a bilateral negotiation, then you can ram anything down its throat," he said. "Those guys will sell both their grandmothers to be able to sign on to such an agreement." Other analysts, meanwhile, say this is precisely why the United States should be increasing the number of FTAs (Stratfor).

Critics also say the embrace of FTAs is siphoning away negotiating energy from the far more important Doha talks and violating a core WTO principle of most-favored-nation status for its members. But another mindset, espoused by the White House, is that FTAs provide another vehicle—in parallel with the Doha talks—for worldwide trade liberalization and the advancement of U.S. values. Jeffrey Schott, a senior fellow at the Institute for International Economics, says in addition to being net creators of trade, FTAs help developing states lock in reforms and become more sophisticated trade negotiators. The Heritage Foundation/Wall Street Journal 2006 Index of Economic Freedom says countries with freer trade policies have higher per-capita growth than those that keep barriers to trade.

But it can be hard to find a solid answer about what FTAs mean to the U.S. economy. The nonpartisan Congressional Budget Office says the new deals should benefit the United States but "in most cases, all of their effects—good and bad—should be extremely small." A recent report from the Congressional Research Service assesses the potential gains of bilateral deals, noting that there are likely to always be some constituents in Congress threatened by trade deals. The North American Free Trade Agreement (NAFTA) is seen as bringing gains to the U.S. economy, but its impact on Mexico is more problematic. As this CFR task force on North America reports, NAFTA has been transformational for Mexico but most of the good news is in the northern states. Lack of economic opportunity in the south and center, it says, has contributed to illegal migration to the United States, a figure now estimated at close to 12 million.

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