The Economist writes:

Nevertheless Mr Bush has repeatedly made the case for the Colombia trade deal not on its economic rationale, but because it would help a Latin American ally in the war on drugs, and incidentally one whose next-door neighbour is that anti-American irritant, Hugo Chavez, Venezuela’s president.

Um, what is the economic rationale for the US-Colombia PTA? It gives Colombia no new access to US markets, so it can’t be aid consumers. It may aid some US investors who want access to the Colombian telecoms market and US agricultural exporters will enjoy some gains. But it’s hard to get excited about the economic benefits of this trade deal, and it surely can’t be the best place for an unpopular administration to expend its little remaining political capital with respect to international trade.

I don’t find the security story a particularly compelling reason to support the agreement either. I spoke with Dan Fisk, Senior Director for Western Hemisphere Affairs, on Friday about potential for the PTA to improve Colombia’s security situation. Fisk described the economic benefits for Colombia largely in terms of making permanent the preferential market access Colombia currently enjoys. He said that investors are more likely to make significant long-term investments when trade preferences are permanent, rather than subject to legislative renewal as they are under the Andean Trade Preferences Act. He also argued that investors have been moving to Peru, which does have a PTA with the United States.

While these effects are plausible, I question their magnitude. In the end, this PTA is largely symbolic — for both international relations and domestic politics.

Regular readers will notice that my coverage of PTAs has fallen off over the years. With respect to the US-Korea deal, this is completely excusable, as I can just claim to have yielded to Ben Muse’s dedicated effort. But I’ve been awfully silent on the US-Colombia deal. Why?

The US-Colombian free trade agreement is not a free trade agreement — it’s a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker.

But is it even a trade agreement? As Tim Lee notes, “there’s lots of other stuff in here that has nothing to do with free trade.” Sadly, this has characterised the state of American trade policy for a number of years. Back in 2003, Bernard Gordon wrote:

These cases highlight the problems of incorporating non-trade issues into trade agreements. Labor and environmental standards began the practice, but no clear end-points now exist. That recalls Jagdish Bhagwati’s famous warning that “the spaghetti bowl effect” (by which he meant overlapping rules of origin) would make FTAs hopelessly complex and impossible to administer. Today we would add the “Christmas Tree Effect,” the term used in Congress for the many items, each individually attractive though unrelated to a bill’s main purpose, that are added to satisfy special interests. Similar baubles and ornaments characterize today’s world of proliferating FTAs, and will be sought by powerful negotiating partners. Along with the profoundly dangerous capacity of FTAs to revive a world of blocs, they are among the best reasons to maintain instead the global trade system.

These kind of provisions really bother free trade purists (as they should). They fight to prevent mission creep at the WTO, and developing countries succeed in taking the Singapore issues off the table at Doha. But it’s a losing battle — TRIPS made it into the WTO and PTAs include numerous non-trade provisions.

The real questions about this trade deal is: Why is Colombia offering lots of promises on non-trade issues in negotiations? Recall one possible explanation: the US is a huge export market, and this gives it lots of leverage.

But it seems to me that the thing which we’ll have to face up to is that many of these bilaterals are used by lobbies in the West, to some extent your country, all the time in our country, to establish [inaudible]. You get a little country by itself in a bilateral negotiation, then you can ram anything down its throat. Those guys will sell both their grandmothers to be able to sign on to such an agreement because this is a big market, preferential, we also can give goodies on other dimensions or we can give punishments on other dimensions. We are the [inaudible] which can really procure that consensus very quickly with little doubt.

Now, our job intentionally is to say, “Look, you agree to this”—maybe labor standards, maybe intellectual property standards—which are way in excess of what can be negotiated in Geneva, when there are too many players and so on, who will fight a little bit anyway; then use of capital controls, which you ran through a little bit, with Singapore and Chile. The game goes on. But you see, that you can do one by one. It’s a sort of Leninist policy of divide and conquer all opposition.

Now, if you believe that our lobbies are always doing the right thing, that’s fine. Right? I mean, you can argue that. I don’t—I mean, there are good lobbies, bad lobbies, you can go in excess, but the rest of the world now sees that the bilateral is really an instrument of imposition of non-trade or weakly trade-related issues, and they’re beginning to see the game for what it is. And it’s not really a trade game, it’s a non-trade game.

But what possible market access gains could Colombia hope for? As Matt Yglesias notes:

As best I can tell (peruse the text if you’re interested) this actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we’re offering Colombia here is a very solemn promise to keep it that way.

Right (although recall that a solemn promise does actually mean something: when Bush hiked up steel tariffs for a few years, our NAFTA partners were exempted). Is Colombia being strong armed to accept elements it dislikes to win market access? I highly doubt it. The US has very low MFN tariffs, except for sectors like agriculture, steel, and textiles, and Colombia has no hope of winning access in those areas.

The most plausible explanation I’ve encountered is that offered by Dan Drezner: PTAs are a political commitment device. They have “little to do with economics and everything to do with our bilateral and regional relationships.”

That’s why I’ve said so little about the US-Colombian preferential trade agreement. I study international economics, not international relations.

Regular readers will notice that my coverage of PTAs has fallen off over the years. With respect to the US-Korea deal, this is completely excusable, as I can just claim to have yielded to Ben Muse’s dedicated effort. But I’ve been awfully silent on the US-Colombia deal. Why?

The US-Colombian free trade agreement is not a free trade agreement — it’s a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker.

But is it even a trade agreement? As Tim Lee notes, “there’s lots of other stuff in here that has nothing to do with free trade.” Sadly, this has characterised the state of American trade policy for a number of years. Back in 2003, Bernard Gordon wrote:

These cases highlight the problems of incorporating non-trade issues into trade agreements. Labor and environmental standards began the practice, but no clear end-points now exist. That recalls Jagdish Bhagwati’s famous warning that “the spaghetti bowl effect” (by which he meant overlapping rules of origin) would make FTAs hopelessly complex and impossible to administer. Today we would add the “Christmas Tree Effect,” the term used in Congress for the many items, each individually attractive though unrelated to a bill’s main purpose, that are added to satisfy special interests. Similar baubles and ornaments characterize today’s world of proliferating FTAs, and will be sought by powerful negotiating partners. Along with the profoundly dangerous capacity of FTAs to revive a world of blocs, they are among the best reasons to maintain instead the global trade system.

These kind of provisions really bother free trade purists (as they should). They fight to prevent mission creep at the WTO, and developing countries succeed in taking the Singapore issues off the table at Doha. But it’s a losing battle — TRIPS made it into the WTO and PTAs include numerous non-trade provisions.

The real questions about this trade deal is: Why is Colombia offering lots of promises on non-trade issues in negotiations? Recall one possible explanation: the US is a huge export market, and this gives it lots of leverage.

But it seems to me that the thing which we’ll have to face up to is that many of these bilaterals are used by lobbies in the West, to some extent your country, all the time in our country, to establish [inaudible]. You get a little country by itself in a bilateral negotiation, then you can ram anything down its throat. Those guys will sell both their grandmothers to be able to sign on to such an agreement because this is a big market, preferential, we also can give goodies on other dimensions or we can give punishments on other dimensions. We are the [inaudible] which can really procure that consensus very quickly with little doubt.

Now, our job intentionally is to say, “Look, you agree to this”—maybe labor standards, maybe intellectual property standards—which are way in excess of what can be negotiated in Geneva, when there are too many players and so on, who will fight a little bit anyway; then use of capital controls, which you ran through a little bit, with Singapore and Chile. The game goes on. But you see, that you can do one by one. It’s a sort of Leninist policy of divide and conquer all opposition.

Now, if you believe that our lobbies are always doing the right thing, that’s fine. Right? I mean, you can argue that. I don’t—I mean, there are good lobbies, bad lobbies, you can go in excess, but the rest of the world now sees that the bilateral is really an instrument of imposition of non-trade or weakly trade-related issues, and they’re beginning to see the game for what it is. And it’s not really a trade game, it’s a non-trade game.

But what possible market access gains could Colombia hope for? As Matt Yglesias notes:

As best I can tell (peruse the text if you’re interested) this actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we’re offering Colombia here is a very solemn promise to keep it that way.

Right (although recall that a solemn promise does actually mean something: when Bush hiked up steel tariffs for a few years, our NAFTA partners were exempted). Is Colombia being strong armed to accept elements it dislikes to win market access? I highly doubt it. The US has very low MFN tariffs, except for sectors like agriculture, steel, and textiles, and Colombia has no hope of winning access in those areas.

The most plausible explanation I’ve encountered is that offered by Dan Drezner: PTAs are a political commitment device. They have “little to do with economics and everything to do with our bilateral and regional relationships.”

That’s why I’ve said so little about the US-Colombian preferential trade agreement. I study international economics, not international relations.

The Australiasian noodle bowl is heating up! China has signed a bilateral PTA with an OECD member.

New Zealand signed a comprehensive trade agreement with China on Monday, the first developed nation to seal such a deal with the world’s largest developing economy.

Helen Clark, New Zealand’s prime minister, and Wen Jiabao, the Chinese premier, attended a signing ceremony in Beijing to mark the agreement, completed after three years and more than 15 rounds of negotiations.

Phil Goff, New Zealand’s trade minister, has claimed China’s maiden trade agreement with a developed nation as a coup for his country and a potential framework for others.

“Just about every country in the world wants a trade agreement with China. New Zealand was important because we set the basis for the future negotiations and we have tried to come up with a high quality and comprehensive deal,” he said.

John Whalley:

In this paper I seek to both characterise and assess the recent wave of regional agreements in the trading system which has accelerated since 2000. Nearly 400 agreements now exist, and, according to WTO analysis, by 2008 a significant number of countries will be party to more than 30 agreements. I suggest these agreements are characterised by several central features: substantial diversity in form, broadened coverage of issues to the degree that RTAs seemingly now provide a platform to which a range of issues are appended; vagueness in language and commitment so that they should be understood as much as process agreements as mutual limitations on trade restriction measures; and in may cases sharp asymmetries of partner size.

I suggest that a number of factors account for growth in these agreements. These include the use of RTAs as a platform to append a range of issues for targeted bilateral negotiation; the failure of multilateral negotiation to extend bargaining to non-trade issues since the Uruguay Round; the prospect of limited failure of the multilateral process; the demonstration effect of large entities going regional and smaller entities seeking safe-haven agreements with their most important large partners; and the uses of agreements by politicians and negotiators to demonstrate action and negotiation seeking advancement.

I conclude by suggesting that, after a minimalist conclusion to the Doha Round, weakened multilateralism may well only accelerate this process.

Philip Levy has a nice primer on NAFTA for those not familiar with the fact that trade affects the composition, not the number, of jobs in an economy. And he lucidly explains the calculations driving the “million jobs lost” estimates. Of course, this was known fifteen years ago, sheesh.

Richard Baldwin writes:

The world’s most important trade talks – the Doha Round – appear to be slipping into a coma while key nations play a waiting game. What are they waiting for? Some are waiting to see if Europe commits to unilaterally dismantling the EU’s massively distortionary agricultural policies during its 2008/2009 review. Others are waiting to see if the next US president is more protectionist or more accommodating. And the major developing nations see their exports growing at double-digit rates despite the stalemate, so what’s the rush?

But trade liberalisation is not standing still. Nations around the global are falling over themselves to liberalise trade regionally, bilaterally and unilaterally. The world trade system is labouring under a massive proliferation of regional trade agreements and the problem gets worse month by month. The resulting tangle of trade deals conspires to inject both inefficiency and discrimination against poor countries into the multilateral system.

Most amazingly, the WTO has had next to no involvement in this important development. The WTO – and this means the WTO membership since the institution only does what its members want – has adopted the role of “innocent bystander”. Key figures in world trade – negotiators, ministers, the WTO secretariat, academics, civil society and the media – need to look beyond the Doha Round. Doha or not, countries will continue to strike bilateral and regional deals. Doha will do little or nothing to ‘tame the tangle’. What is needed is a WTO Action Plan on Regionalism.

The fact that regionalism is here to stay is not news to those who follow these issues. But Baldwin and Philip Thornton have a new book that makes a first pass at policy recommendations to address the new reality:

The action plan outlined in the book calls for:

· Quicker and more detailed disclosure of the start and extent of negotiations on regional trade agreements.
· A WTO-sponsored forum for small countries to exchange experiences of RTAs.
· The creation of a WTO advisory centre on RTAs for developing countries.
· Voluntary guidelines on disciplines for new RTAs and modifications of existing ones.
· Harmonisation of key elements of RTAs, such as “rules of origin” to create templates for existing and new deals.
· The adoption of “most favoured nation” (MFN) clauses in future RTAs that give other countries the protections offered by the RTA.
· Countries to lower their MFN tariff rates on goods that dominate inter-regional trade.

Fredrik Erixon says that a EU-India FTA faces a number of difficulties:

A strong, commercially-relevant FTA would focus primarily on services and investments – which are two areas that are not really part of centralised EU trade policy. The EU does not have a single market for services, and certainly has no centralised policy for investment agreements. So there has to be a lot of internal negotiations in Europe before it can agree to any real commitments. But the problem is that it is highly unlikely that they will come to common to a position that will support a strong, deep-integrating FTA. Similarly, many aspects of these areas do not fall under the federal competence in India, and policies are rather organised at states level.

A story in the WTO Reporter, passed along by Richard Baldwin, says that trade “preferences” aren’t what they used to be:

The Japan-Thailand economic partnership agreement took effect Nov. 1, but in a technical twist, Thai tariffs on more than a quarter, or about 2,500 Japanese export goods, remain unchanged or end up being higher than the general tariffs that Thailand previously charged…

The Japan External Trade Organization is telling exporters to make sure to compare Thai general tariff rates with those under the Japan-Thai EPA and choose the lower ones, Harino said, admitting that it is “very complicated” work…

The two countries commenced EPA talks in 2004, and during the intervening period to date, Bangkok lowered its general tariffs on many industrial products, such as auto engines, auto parts, and tires. Of some 10,000 Japanese export items that would qualify for Japan-Thai EPA tariff cuts, approximately 25 percent would be either unchanged or end up being higher than WTO-based MFN general tariff rates until next March.

Michael G. Plummer has an article titled “‘Best Practices’ in Regional Trading Agreements: An Application to Asia” in the latest issue of The World Economy:

Given that regionalism in Asia and, indeed, the entire world is a ‘fact on the ground’, the main objective of this paper is to go beyond the traditional ‘building blocs versus stumbling blocs’ debate by underscoring the potential benefits of bilateral and regional agreements under the condition that they follow ‘best practices’, which we develop in Section 3. As an application of these ‘best practices’, we analyse existing regional accords between Asian countries and their regional and extra-regional partners in Section 4…

In fact, the economics literature, as well as the GATT/WTO rounds themselves, have placed far too much emphasis on tariffs. It is true that they are easiest to analyse (for economic models) and negotiate (for policy makers) but they are no longer the most important obstacles to international trade. In fact they have become increasingly irrelevant, and with them much of the standard ‘trade creation and trade diversion’ approach to estimating the worthiness of a regional trading agreement. According to the World Bank (2005, p. 66), the average tariff of NAFTA countries comes to approximately three per cent and that of AFTA slightly less than five per cent. Obviously, the effects of these FTAs, for better or worse, will ultimately not be decided by the usual net efficiency calculations. The economics of FTAs have become far too complicated, and generally speaking economic analysis and negotiators have often failed to keep pace.

In any event, the regionalism trend is here to stay. Regardless of the argumentative merits of the pro- and anti-regionalism camp, it is a ‘fact on the ground’ that preferential trading agreements, in particular FTAs, have been flourishing. There are myriad reasons behind this movement, with convincing economic, political-economy and strictly political arguments. But this does not mean that evaluating regionalism is the economic equivalent of counting how many angels can dance on the head of a pin. An inward-approach to regional economic cooperation could pose serious risks to the countries espousing them as well as to the international marketplace. Given that all major countries now subscribe to regional trading accords to various degrees, this suggests a threat that must be evaluated with continued vigilance.

A successful conclusion to the Doha Development Agenda would be very favourable to the global economy. With respect to the regionalism movement, not only would it, perhaps, strengthen openness rules on Article XXIV beyond the 1994 GATT Understanding, but it would also mitigate the effects of discrimination inherent in regionalism. However, not even a successful Doha will likely turn back the clock on bilateral and regional FTAs. Even if we leave aside the diplomatic and political-economy aspects of regionalism that tend to support the movement, there will remain salient economic influences that will continue to make bilateral, regional and plurilateral FTAs and other forms of regional economic cooperation attractive. Hence, it behoves economists to accept regionalism as a reality, and proscribe means to ensure that the trend be consistent with global market integration as well as being as efficient as possible in terms of minimising costs associated with this second-best commercial policy.