Competitive liberalisation: A really bumpy road

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Alan Beattie and Anna Fifield in the FT on hard bargains:

Protests against imports of American beef, which have brought thousands of Koreans on to the streets, highlight problems with the White House’s policy of “competitive liberalisation”, or trying to bring down trade barriers worldwide by signing a flurry of bilateral and regional deals. With other leading economies also encountering difficulties in signing such pacts, are the wheels coming off the bilateral bandwagon?…

The administration of President George W. Bush has won the congressional votes approving each of its pacts. Yet bilateral deals allow trade lobbies to concentrate their fire, whereas they can struggle to make themselves heard in wider negotiations. This applies particularly to the US, which applies the same demanding model in each negotiation…

To win approval on Capitol Hill, sensitive sectors such as sugar and cotton need to be protected, while the main agricultural exporters, including beef and pork farmers, must gain in market access…

Most of the deals Congress has approved so far are with relatively small countries.

Securing even those agreements is becoming harder. The politics of trade in the US itself is also explosive, given widespread suspicions among the Democrats of the effects of trade and globalisation. A framework for trade deals between the congressional leadership and the White House, agreed in May last year and involving tougher rules on labour law and environmental standards, was enough to get through a deal with Peru. But the next agreement that came down the pipeline, a pact with Colombia, has caused the already sour relations on trade between the White House and Capitol Hill to turn poisonous…

Much of the White House rhetoric in the Colombia stand-off has been geopolitical, not economic… But whatever the motives, competitive liberalisation has ended up with the White House expending a huge amount of time, energy and limited political capital, including sending multiple cabinet secretaries on trips to Colombia, to pass a deal covering less than 1 per cent of US trade.

It would be extrapolating too much from the US experience to suggest that bilateral and regional trade diplomacy around the world has stalled. Some other big trading powers are having less difficulty negotiating agreements. But deals delivering deep and broad liberalisation, particularly involving developing countries, remain an endangered minority…

The EU’s attempts to negotiate collectively with Asean are meanwhile foundering on the near-impossibility of getting a broad and detailed agreement with a grouping of economies that range from one of the richest in the world, Singapore, to a least-developed country such as Laos.

More generally, economists say that differences in economic development and competitiveness mean that most intra-Asia trade pacts are currently generating more flows of talk and ink than movements of goods and services. They certainly are not adding up to serious advances for reciprocal liberalisation.

Prof Baldwin points at an unhelpful combination of sensitivities among the big three trading powers of east Asia. The collective positions of Japan, South Korea and China reflect the sum of their fears. “Japan and Korea won’t accept free trade in food if they sign with China; the Chinese are afraid of being locked into low-end manufacturing if they sign with Japan or Korea; and Korea is concerned at being squeezed competitively between Japan and China if it signs with Japan,” he says. “This combination has brought everything to a halt.” Japan and China are separately signing a flurry of bilateral deals with other countries around the region but many of these are limited in coverage…

it has also become clear that doing trade liberalisation step by step involves travelling a much bumpier road than at first appeared.

Most of those observations are already known to regular Trade Diversion readers, but it’s nice to see them appear in an extended FT analysis.

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