u.s. multilateral and regional trade...
TRANSCRIPT
CHAPTER VI
U.S. Multilateral and Regional Trade Diplomacy
INTRODUCTION
The intemational trade policy of the United States, the world's largest
economy, aims to safeguard its economic preeminence and gain
commercial advantages through the use of national instruments of
power and assertive diplomacy. The central goal is to keep the United
States "strong, secure and prosperous" 1 -- a goal that requires an
aggressive export strategy to preserve and boost economic growth at
home. Without a strong economy, the United States will not be able to
maintain its unmatched military power, its political dominance in global
affairs or even the vitality of its diplomacy. Trade thus is pivotal to the
preservation of American power in the world. 2 The triumph of the
United States in the Cold War ironically has sharpened economic
competition in the world, particularly among nations that have
traditionally been aligned with each other. Trade has emerged as the
most powerful locomotive of national growth.
The erosion of U.S. economic hegemony with the rise of peer
competition has compelled American policy-makers to adopt more
innovative and aggressive tactics to regain their country's economic
primacy. "In the late 1950s, as a dominant and independent economy,
the United States could use its intemational economic influence to
achieve political and security objectives. Today the United States is
1 President Bill Clinton, Preface, in White House, A Nationa[ Security Strategy for a New Century (Washington, D.C.: The White House, May 1997). p.iii.
2 'The U.S. government has focused on trade policy as one of the principal tools available to it in achieving the national economic goal of expanded domestic economic opportunity." Deputy United States Trade Representative Jeffrey Lang. Statement before the World Trade Organization review of U.S. trade policy, November 11, 1996 (Washington, DC: United States Information Agency).
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merely the first among equals in an interdependent world economy."3
U.S. economic diplomacy has strived hard since the 1970s to win
important commercial privileges through multilateral, regional, bilateral
and unilateral efforts. All possible diplomatic instruments are being
employed by the United States to bolster its economic might. 4 When
bilateral and multilateral efforts fail, Washington has been ready to
resort to unilateral measures to advance its commercial interests. 5
The United States has been the leader of the international trading
regime since the 1940s when it spearheaded the establishment of the
Bretton Woods arrangements and the General Agreement on Tariffs and
Trade (GATI). GATI, the predecessor of the present World Trade
Organization (WfO), created a multilateral regime to promote relatively
open commerce. The establishment of the wro after seven years of
negotiations under GATT's Uruguay Round was a big victory for U.S.
economic diplomacy. The United States, meanwhile, has continued to
actively pursue regional trade agreements, contending that such
accords will act as a stimulant to the multilateral system. 6 It has
championed "open regionalism" compatible with the wro system.
The 1990s have been marked by rising tensions between
multilateralism and regionalism, largely due to the policies of the global
trade leader, the United States. 7 In addition to the WfO, whose
dispute-settlement procedures have come handy to American
3 Barry P. Bosworth and Robert Z. Lawrence, "America's Global Role: From Dominance to Interdependence," in Brookings Institution, Restructuring America's Foreign Policy (Washington, DC: Brookings Institution, 1989). p. 12.
4 See Raymond Vernon and Debora L. Spar, Beyond Globalism: Remaking American Foreign Economic Policy (New York, NY: Free Press, 1989).
5 William A. Niskanen, 'The Bully of World Trade," Orbis, Vol. 33 (Fall 1989), pp. 531-538.
6 Stuart Eizenstat, U.S. UnderSecretary of Commerce, Intenriew, Economic Perspectives electronic journal (November 1996).
7 Jagdish N. Bhagwati, "United States Trade Policy at the Crossroads," World Economy, Vol. 12 (December 1989). pp. 439-479.
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diplomacy, Washington has waged battles on several other fronts for
greater foreign-market access for its goods and services. It has sought
to assertively promote its commercial interests through its role in
institutions such as the Organization of Economic Cooperation and
Development (OECD) and the Paris Club of lender nations and from its
participation in regional trading blocs.
America's global and regional interests are being ably served by
the establishment of the WTO and North American Free-Trade
Agreement (NAFTA), the 1994 Bogor Declaration of the Asia-Pacific
Economic Cooperation (APEC) forum to "achieve free and open trade
and investment in the region" by firm dates, 8 the 1995 Osaka Action
Plan, the outcome of the December 1996 first WTO meeting of trade
ministers, the Action Plan approved by the Summit of the Americas, the
December 1995 launch of the Trans-Atlantic Marketplace with the
European Union, and the 1997 accords on multilateral financial
services, information technology and basic telecommunications. 9 The
United States has also been employing domestic laws with extra
territorial jurisdiction to make other governments fall in line on trade
issues.
The emphasis on regionalism and unilateralism reflects a
departure from the core assumptions on which U.S. trade policy was
constructed after World War II: That "a multilateral approach to trade
agreements and a commitment to rules rather than results promote
8 The deadline is 2010 for the industrial economies that comprise 85 percent of APEC trade, and 2020 for the rest.
9 The fmancial-services accord, together with the Information Technology Agreement (ITA) and the agreement in the WfO to lock in telecommunicationsrelated market-opening commitments, opens new multibillion commercial opportunities for the United States in sectors where it is "the most competitive producer and service provider in the world." U.S. Treasury Secretary Robert Rubin and U.S. Trade Representative Charlene Barshefsky, Joint Statement on the Successful Conclusion of the WfO Financial Services Negotiations (Washington, DC: USTR. December 13. 1997).
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beneficial trade and interdependence." 10 Now results seem to matter
more than rules for the United States. According to Strobe Talbott,
'While American diplomats are helping to write the rules and build the
institutions that govern the global economy, they are also aggressively
advocating the interests of U.S. businesses around the world." 11
U.S. DIPLOMACY AND SURGING REGIONALISM
The rise of regional trading blocs -- including the enlargement of the
European Union (EU) and Association of South-East Asian Nations
(ASEAN) and the advent of the North American Free-Trade Agreement
(NAFTA), Asia-Pacific Economic Cooperation (APEC), Free Trade Area of
the Americas (FTAA) and Southern Cone Common Market (MERCOSUR)
Agreement among Brazil, Argentina, Paraguay and Uruguay -- have
raised the spectre of the world trading system splintering into several
regional economic alliances.
Free-trade agreements (FTAs) at the regional level are being
actively sought by important economies. 12 The major group with which
the EU has FTAs is the European Free Trade Association (EFTA). now
made up only of Iceland, Liechtenstein, Norway and Switzerland. 13 The
EU and EFTA are negotiating FTAs with the states of Central and
10 Robert E. Litan and Peter 0. Suchman. "U.S. Trade Policy At a Crossroad," &ience, Vol. 247 (January 5, 1990). pp. 33-38.
11 Strobe Talbott, "Globalization and Diplomacy: A Practitioner's Perspective," Foreign Policy, No. 108 (Fall 1997). p. 77.
12 See Jeffrey J. Schott (ed.). Free Trade Areas and U.S. Trade Policy (Washington, DC: Institute for International Economics. 1989).
13 The EITA. formed in 1960, continues to exist despite its principal members having joined the European Union over the years. These members are Austria, Britain. Denmark, Finland, Portugal and Sweden.
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Eastern Europe and the Mediterranean. 14 FTAs already concluded in
the Americas include the Chile-Canada FTA, MERCOSUR-Chile FTA and
MERCOSUR-Bolivia FTA. 15 The EU has sought with Mexico,
MERCOSUR and Chile reciprocal agreements to eliminate substantially
all trade barriers. American economic diplomacy is concerned about
regional or subregional trade arrangements that exclude the United
States but include its competitors like the EU. As a recent U.S.
government report states,
Any time a trade agreement is concluded that reduces barriers among the parties, and those parties do not include the United States, U.S. producers are put at a competitive disadvantage in that market ... An additional danger of such FTAs proceeding without U.S. involvement is that they may begin to address non-tariff issues in ways incompatible with U.S. interests. Thus far, the FTAs in the [Western] hemisphere, other than NAFTA, are essentially tariff elimination arrangements. They are not yet comprehensive agreements that cover other trade and trade-related measures, such as government procurement, investment, intellectual property protection, sanitary and phytosanitary measures, product standards, and services. It would be beneficial, therefore, to develop regionwide disciplines in these areas and shape them in America's interests before others seize the initiative and shape the rules of trade. 16
The five most important trading blocs to emerge are the EU,
NAFTA. APEC, MERCOSUR and ASEAN, whose members have already
agreed to establish the ASEAN Free Trade Arrangement, or AFTA. The
movement towards creating strong regional economic blocs, or
14 The EU and the EFTA have already concluded free-trade arrangements with a number of states individually.
15 In addition, ITA negotiations are already underway between MERCOSUR and Mexico, MERCOS UR and most of the Andean Community. Mexico and the Northern Triangle of Central America (Guatemala, El Salvador and Honduras). Central America and the Caribbeans, Mexico and Peru and Mexico and Ecuador.
16 White House. Report to the Congress on Recommendations on Future Free Trade Area Negotiations (Washington, DC: White House, September 25. 1997).
228
"superblocs," could well "create centrifugal forces in the Western
alliance (the United States, West Europe and Japan) and may cause
serious problems for American influence and interests around the
world." 17
The United States' own vigorous pursuit of regional trade
agreements shows that it has increasingly become less committed to
multilateralism in foreign trade in the period since its economic
hegemony began eroding. 18 As officially acknowledged, "Under President
Clinton's direction, the Office of the U.S. Trade Representative has
negotiated more than 220 trade agreements . . . that expand
opportunities for U.S. companies and workers. These agreements,
combined with aggressive export promotion and enforcement of our
trade laws, have helped increase U.S. exports of goods and services
since 1992 by 37.4% to more than $848.8 billion in 1996." 19 Most of
these trade agreements have been reached at the regional or bilateral
level.
U.S. economic diplomacy at present is focusing on negotiating
further free-trade agreements mainly in the Western Hemisphere,
although it is "open to considering additional arrangements, particularly
where they would advance our trade, foreign policy and other important
national priorities."20 The United States is committed to concluding a
comprehensive FTA with Chile "because of its extraordinary
performance and its logical position as our next trade partner in this
17 Jeffrey E. Garten, 'Trading Blocs and the Evolving World Economy," Current History, Vol. 88 (January 1989). pp. 15-16.
18 Bhagwati, "United States Trade Policy at the Crossroads," op. cit., pp. 439-479.
19 Office of the United States Trade Representative, "Monitoring and Enforcing Trade Laws and Agreements," Fact-Sheet (Washington, DC: USTR, September 30, 1997).
20 White House, Recommendations on Future Free Trade Area Negotiations, op. cit.
229
hemisphere."21 It is also committed to completing a Free Trade Area of
the Americas (FTAA) no later than 2005 under the Miami Summit
Declaration and Plan of Action. The FTAA will cover every democracy
of the Western Hemisphere.
The FTAA, under U.S. leadership, will have the WI'O obligations
as its baseline and incorporate new path-breaking, future-oriented
provisions. The 34 democratic countries of the hemisphere have
committed themselves to comprehensive agreements to maximize
market openness covering tariffs, non-tariffbarriers (NTBs), agriculture,
subsidies, investment, intellectual property rights, government
procurement, product standards, safeguards, rules of origin, anti
dumping and countervailing duties (AD/CVD). sanitary and
phytosanita:ry (SPS) procedures, dispute settlement and competition
policy. 22
U.S. economic diplomacy, in other words. wants the FTAA to serve
as a paragon of "open regionalism" built on the principles of the
American economy. Through such trading arrangements, the United
States would like to remake regional economies in the American way
and reinforce its long-term commercial interests. At a minimum, it
would like any regional arrangement in which it participates to
significantly boost its economic interests. This helps explain why U.S.
diplomacy is so actively seeking to influence the shape of the emerging
trading blocs, including APEC.
The strong U.S. emphasis on regionalism is spurring tension with
multilateralism.23 A major pillar of the current multilateral trading
system as represented by the wro is non-discrimination in trade
21 White House, A NationaL Security Strategy for a New Century (Washington, D.C.: The White House, May 199,7). p. 16.
22 White House, Recommendations on Future Free Trade Area Negotiations, op. cit.
23 See National Planning Association, The Growing of RegionaL Trading BLocs in the GLobaL Economy (Washington, DC: National PlanningAssociation, 1990).
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between and among wro member-states. That premise of non
discrimination is enshrined in the WfO's "most-favoured-nation" (MNF)
principle. However, one permitted exception to the MNF principle is the
grant of preferential treatment as part of a regional trade accord.
The GATI itself sanctioned that exception in a customs union or
regional agreement. Although such arrangements imply preferential or
discriminatory trade policy that conflicts with a basic tenet of the GATI,
the GATI permitted their establishment under its Article XXIV on the
supposition that "regional trade liberalization constituted an advanced
implementation of tariff reductions on an MNF basis."24 The GATI,
however, only allowed customs unions if they meant the removal of
restrictions on most of the trade between members and if the average
restrictiveness of external-trade barriers did not increase. 25
Similarly, the WfO permits an FTA if it covers substantially all
products and erects no new barriers to the outside world. It insists on
trade creation, not trade diversion. This is because, as Patrick Low has
pointed out, regional arrangements can be "a positive development if
they create trade and are open-ended and non-exclusive, but they can
also fragment the trading system and become punitive to outsiders."26
America's advocacy of"open regionalism" with the continued MNF
exception is rooted in its emphasis since the 1980s on concrete
reciprocity in all trade matters. As U.S. Under Secretary of Commerce
Stuart Eizenstat has explained, 'The reason for not doing it on an MFN
basis is that you get the free-rider problem -- countries that take
advantage of the reduction or elimination of tariffs and other barriers
24 Renato Ruggiero, Director-General of the World Trade Organization, "Multilateralism and Regionalism in Trade," Economic Perspectives, Vol. 1, No. 16 (November 1996).
25 Kenneth Dam, The GAIT: Law and International Economic Organization (Chicago, IL: University of Chicago Press, 1970). pp. 274-5.
26 Patrick Low, Trading Free: The GAIT and US Trade Policy (New York, NY: Twentieth Century Fund Press, 1993). p. 33.
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without themselves making contributions. "27 No longer is the United
States willing to open its market on non-reciprocal basis or wink at
"cartels and monopolies and keiretsu arrangements" as it did during its
age of economic hegemony. 28
By embracing regionalism, the United States effected a volte-face
in its traditional trade policy.29 It was only in 1987 that Washington
entered into its first FTA -- an agreement with Israel. This was soon
followed by the Canada-US Free Trade Agreement (CUSFTA). which,
with the subsequent inclusion of Mexico, became NAFTA.30 The swing
towards trade regionalism was aided by growing American
disillusionment with the GATI, criticized for "its inability to secure
agreement among many countries with diverse interests, its slowness
to act, its limited agenda, and its inability to enforce established
disciplines."31 As America's relative economic power eroded, it became
restless with the way its economic competitors were using the GATT
system to their commercial advantage.32 So it turned to regionalism for
quicker returns.
As trade groupings were already proliferating across the globe, the
United States was in reality only following a general trend towards the
establishment of "spheres of influence" in trade. However, the new
leaning of the United States towards regionalism constituted a "tacit
27 "Interview: Eizenstat on Multilateral, Regional Trade," Economic Perspectives, Vol. 1, No. 16 (November 1996).
28 Ibid.
29 See Joanne Gowa, Allies, Adversaries and International Trade (Princeton, NJ: Princeton University Press, 1994).
3° CUSFTA was negotiated between 1985-88 and came into force in 1989. President Clinton signed NAFTA into law on December 3, 1993.
31 Low, GAIT and US Trade Policy. op. cit., p. 31.
32 See David A. Lake, Power, Protection and Free Trade (Ithaca, NY: Cornell University Press, 1987).
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admission of its relative economic and political decline."33 It was that
very decline that made the global trade regime less attractive to U.S.
foreign economic policy in its goal to rebuild America's economic power.
Global negotiations are slow and difficult and their final outcome at
times reflects the lowest common denominator. In contrast, regional
and bilateral settlements offered U.S. policy a way to promote direct
reciprocity and win faster commercial gains. 34 The GATI came to be
derisively referred to as the General Agreement to Talk and Talk.
According to Jagdish Bhagwati, America's policy shift towards
regional trade arrangements was also motivated by its desire to
negotiate in forums where it could use U.s. power "most effectively to get
the kind of concessions that [American] lobbies seek. By using a
combination of Section 301 actions and bilateral regional pacts. the
United States can knock off the developing countries one by one, and
even force them, in the end, to accept terms at the GATI which they
otherwise would not accept. Implicitly or explicitly, [American] lobbies
have gotten on to the Leninist policy of 'divide and conquer'!"35
U.S. policy, by embracing regionalism, provided global legitimacy
to the two-track approach to liberalized trade. 36 At one level, tariff and
non-tariff barriers will be dismantled regionally through trading blocs,
FTAs and subregional arrangements. At the second level, international
institutions like the WfO, World Bank and International Monetary Fund
will serve as conduits through which the liberalization of trade in goods
33 Martin Wolf, Commentary to Paul Wonnacott and Mark Lutz, "Is There a Case for Free Trade Areas?," in Schott, Free Trade Areas and US Trade Policy, op. cit., pp. 89-95.
34 Bruce J. Heiman, 'The Conduct of International Economic Relations in the Bush Administration," Fletcher Forum, Vol. 13 (Winter 1989). pp. 9-17.
35 Jagdish Bhagwati, 'Which Way? Free Trade or Protection?", Challenge (January-February 1994). p. 20.
36 Robert D. Honnats. "Making Regionalism Safe," Foreign !Ufairs, Vol. 73. No. 2 (March/ April 1994). p. 98.
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and services is brought about. In fact, U.S. policy ensured that
regionalism was there to stay and that it could coexist with
multilateralism. As a consequence, it has become clear that the post
Cold War era will be characterized by a web of trade relationships at the
multilateral, bilateral, regional and subregional levels.
Regional trading blocs are now highly valued by the major
economies and rapidly industrializing states of Asia and Latin Amertca.
They are also viewed as stepping stones to the full integration of the
developing economies into the global market. 37 Trade alliances with
advanced industrial states through regional arrangements are seen by
many developing economies as a route to rapid development and to
attract foreign investment without exposing their nascent industrtes to
full global competition. 38 It is precisely for these advantages that Mexico
joined NAFfA and several East European states are looking for EU
membership.
After notching up NAFrA, U.S. economic diplomacy employed
subtle tactics to help create another "superbloc," APEC. It played up
the "fear of exclusion" factor to make Asian countrtes be more
forthcoming with regard to APEC. This was done by instilling in them
concem that they would have to tap new markets ifNAITA limited their
access to the North Amertcan market-- the world's biggest. According
to the report of the Twentieth Century Fund Task Force, "The prospect
of trade diversion prompts other countries to seek affiliation with the
group, and the end result is to enlarge the zone of liberalization."39
37 Richard Tropp, "Seizing the Opportunity Presented by LDC Blocs," in National Planning Association, Growing of Regional Trading Blocs in Global Economy, op. cit.
38 See Gowa, AUies, Adversaries and International Trade, op. cit.
39 The Free Trade Debate: Report of the Twentieth Century Fund Task Force on the Future of American Trade Policy, with Background Paper by Gary Clyde Hufbauer (New York, NY: Priority Press Publications, 1989). p. 136.
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NAFTA
The North American Free Trade Agreement (NAFfA) came to symbolize
the shift towards regionalism in America's traditional international trade
policy. The United States had always favoured multilateralism and non
discrimination and disliked regional and other discriminatory free-trade
arrangements.40 It was the United States which had ensured that GATT
would be guided by the central principle of non-discrimination. Under
the MFN rule, if trade barriers were lowered for one they had to be
concurrently lowered for all. So staunch were the Americans in their
advocacy of non-discrimination that they took up cudgels against
Britain when it wanted to retain its Imperial Preference System41 despite
the GATT-IMF-World Bank troika.42
NAFfA emerged as the successor to the Canada-U.S. Free Trade
Agreement (CUSFTA), which was negotiated from 1985 onwards.
Europe's refusal to start multilateral trade negotiations in 1982
gradually prompted the Reagan administration to take interest in a
regional trade pact with Canada.43 It was to counterbalance the threat
of a "Fortress Europe" that U.S. economic diplomacy turned to
40 The American advocacy of non-discriminatory trade dates back to 1933 when President Franklin D. Roosevelt in a speech to the governing board of the Pan American Union asked the republics of the hemisphere to "abolish all unnecessary and artificial barriers and restrictions which now hamper the healthy flow of trade." Roosevelt's secretary of state. Cordell Hull, was a freetrade patriarch who viewed the trade tariff barrier as "the king of evils". See Robert Dallek, Franklin D.Roosevelt and American Foreign Policy, 1932-1945 (Oxford, UK: Oxford University Press, 1979).
41 Britain's Imperial Preference System had at one time even barred the United States from access to the commonwealth markets of Canada, Australia and South Africa.
42 Bhagwati, 'Which Way? Free Trade or Protection?", op. cit., p. 17.
43 See Raymond Vernon and Debora L. Spar, Beyond Globalism: Remaking American Foreign Economic Policy (New York, Free Press, 1989).
235
CUSFTA. 44 Canada was the "first major country to have participated in
a comprehensive regional free-trade agreement with the United States
in modem history."45 The CUSFTA, and later the NAFTA, signalled
America's moves to snap the umbilical cord that attached it to Europe.
In his much-acclaimed article, 'The Geopolitical Implications of
the U.S.-Canada Trade Pact," James Baker, the then U.S. treasury
secretary, contended that a "strategic employment of bilateral
agreements can actually sustain and support the GATI."46 Setting out
the arguments in defence of bilateralism and regionalism, Baker
contended that if no follow-up liberalization at the multilateral level took
place after greater openness at the regional level, the United States
could then be tempted to explore what he called a "market liberalization
club" approach. 47 In that case, regionalism may gradually overtake
multilateralism.
It was Mexican President Carlos Salinas de Gortari, pursuing the
economic-liberalization programme introduced by his predecessor,
Miguel de la Madrid Hurtado, who suggested to President George Bush
in mid-1990 that the United States negotiate a CUSFTA-style free trade
agreement with Mexico. Bush readily agreed to open talks, Canada
joined the negotiations and the NAFTA was finally concluded amid
continuing high drama in Geneva on Uruguay Round negotiations. 48
44 CUSFTA provided for an elimination of tartffs on bilateral trade, some immediately and some over a period extending up to 10 years. It also eliminated some non-tartff barriers, particularly trade-restricting movement of wine and spirits.
45 Arlene Wilson, Canada-U.S. Trade and Investment Under the FTA and the N.AFTA. CRS Report for Congress. November 12, 1996 (Washington. DC: Congressional Research Service). p. CRS-1.
46 James Baker, 'The Geopolitical Implications of the U.S.-Canada Trade Pact," The International Economy (January/February 1988). p. 35.
47 Ibid, p. 41.
48 I.M. Destler. American Trade Politics (Washington. D.C.: Institute for International Economics, and New York: Twentieth Century Fund, 1992). pp.
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While the CUSITA was an arrangement between countries which
had similar relative factor endowments, the NAFTA was a different bag.
While the United States and Canada are comparably abundant in
capital, land and highly-skilled labour, Mexico is relatively abundant in
unskilled and semi-skilled labour and tropical land. So, when on
December 17, 1992, the United States, Canada, and Mexico signed
NAITA -- it came into force on January 1, 1994 after a storn1y
ratification process in the U.S. Congress -- it was billed "the most
comprehensive free trade pact (short of a common market) ever
negotiated between regional trading partners, and the first reciprocal
free-trade pact between a developing country and industrial
countries."49 NAFTA was approved by the U.S. Congress only after
Mexico was made to accept supplemental accords, including on worker
standards and safety, environmental protection, and control of any
excessive influx of imports. 50
The question immediately arose whether a "superbloc" like NAFTA
would advance or retard the cause of international trade liberalization?
According to John W. Galbraith's view, NAITA, like CUSITA, "exempts
various classes of trade from consideration, allows some classes of
restriction to persist, does not address the question of government
subsidies, and perhaps most importantly is a regional arrangement that
will create the trade diversion that follows from any system of regional
preferences. "51 Other analysts, however, argued that the NAFTA was
134-135.
49 Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA: An Assessment (Washington, D.C.: Institute for International Economics. October 1993). p. 1.
50 Three NAFTA trilateral "side accords" were concluded in August 1993 to deal with environmental and labour issues and rapid and hannful import surges. The side accords supplemented the rights and obligations incorporated in NAFTA and did not formally amend the provisions previously negotiated.
51 Galbraith in A.R. Riggs and Tom Velk (eds.). Beyond NAFTA: An Economic, Political and Sociological Perspective (Vancouver, Canada: Fraser Institute, 1993). p. 270.
237
generally consistent with the goals of multilateralism. According to
Peter Morici, "CUSFTA and NAFTA were built on the GATI: They
broaden and deepen the three countries' wro rights and obligations as
they apply to intra-continental trade."52 In their analysis of NAFTA,
Hufbauer and Schott have this to say:
The NAFTA is a new, improved, and expanded version of the Canada-US FTA. In large part, the agreement involves commitments by Mexico to implement the degree of trade and investment liberalization promised between its northern neighbours in 1988. By widening the scope of the market and enlarging the range of available labour skills, the NAFTA enables North American firms and workers to compete more effectively against foreign producers both at home and in world markets. But the ability of the NAFTA partners to gain maximum benefits from the pact with minimum adjustment costs depends importantly on maintaining domestic economic policies that ensure growth. 53
The NAFTA negotiators produced a forward-looking agreement on
investment, which provides for unrestricted flow of investments and
national treatment to U.S., Canadian and Mexican investors. All
investors from NAFTA partner countries thus have to be treated at par
with domestic investors. NAFTA's investment provisions mirror the
original U.S. proposals on investment at the Trade-Related Investment
Measures (TRIMs) negotiations of the Uruguay Round before those
proposals got diluted to meet the demands of the developing countries. 54
The NAFTA chapter on investment allows each party to impose
52 Peter Morici, "Export Our Way to Prosperity," Foreign Policy. No. 101 (Winter 1995-96). p. 13.
53 Hufbauer and Schott, NAFTA: An Assessment, pp. 2-3. The authors suggest that in order to make NAFTA more congruous with
the wro principles of mulWateralism and free trade, each NAFTA country should volunteer to allow wro panels to examine whether net trade diversion has occurred and offer compensatory measures to third countries if the panels rule that diversion has taken place. Ibid., p. 113.
54 For full text of TRIMs, see General Agreement on Tariffs and Trade (GATI1. The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (Geneva: GATT Secretariat, 1994).
238
environmental standards on inward foreign investment. However, to
discourage the flight of capital to a weaker environmental setting, the
chapter states that, 'The Parties recognize that it is inappropriate to
encourage investment by relaxing domestic health, safety, or
environmental measures."
NAFfA marked the first time a developing country agreed to
accord national treatment to foreign investors from developed
countries. 55 The trade pact, besides incorporating binding obligations
that are more comprehensive than those in CUSFTA, provided for clear
procedures to arbitrate investment disputes. NAFTA also made a major
breakthrough by negotiating a tax treaty56 -- the first of its kind. On the
model of CUSFTA, NAFTA created a trilateral trade commission,
comprising cabinet-level representatives from each country, to
administer the pact and to adjudicate conflicts over the interpretation
or application of its rules.
While NAFTA entailed sweeping changes in Mexico's Law on
Foreign Investment, little change was required in U.S. investment laws
and regulations. The United States still retains the Exon-Florio
amendment, which empowers the executive, on national-security
grounds, to block mergers or joint ventures with, or takeovers of, U.S.
companies by foreign interests.
According to a White House assessment of how NAFTA has been
working, the pact has greatly aided U.S. economic interests. It also
helped rescue Mexico from its worst ever financial crisis. A White
House report states,
NAFTA has already created nearly 310,000 American jobs because of exports to our NAFTA partners. NAFTA has also increased Mexico's capacity to cooperate with our nation on
55 Hufbauer and Schott, NAFTA: An Assessment, p. 84.
56 The United States and Mexico signed a 1992 tax treaty reducing the high statutory withholding rates charged on interest, dividends and royalties flowing in both directions. The treaty also incorporates a host of innovative tax provisions.
239
a wide range of issues that cross our 2,000-mile border-including on environment, narcotics trafficking and illegal immigration. This Free Trade Act helped insulate our trade relationship with Mexico and protect and increase U.S. exports to that country -- and the jobs they support -during the 1995 Mexican financial crisis and the subsequent economic recession and adjustment period. We have also begun negotiations with Chile on expanding NAFfA's membership. 57
As a result of NAFTA, the United States has been able to
significantly boost its exports to Mexico even in the field of agriculture
despite the 1995 peso devaluation. The U.S. share of Mexico's
agricultural imports has jumped from 60% in 1993 to nearly 80% in
1996. American farm exports to Mexico set a record of $5.4 billion in
1996, while a record of $6.1 billion was also established in such sales
to Canada. 58 The volume of trilateral trade and investment in NAFTA
has also been increasing significantly. According to Mexican Trade
Secretary Herminia Blaneo, foreign direct investment in Mexico went up
55% in the first six months of 1996 alone. 59 The total U.S.-Mexican
trade has risen to $130 billion a year, but for America the trade balance
has gone from a surplus of $1.7 billion in 1993 to a deficit of $17 billion
in 1996.60
Areas of Controversy
1: Labour and Environment Concerns
The very prospect of a free-trade pact with a developing economy ignited
57 White House, A National Security Strategy of Engagement and Enlargement (Washington, D.C.: The White House. February 1996), p. 28.
58 Peter Scher, Special Ambassador for Agriculture in the Office of the U.S. Trade Representative (USTR). Speech at the Georgetown University Law Centre, November 13, 1997 (Washington, DC: USTR).
59 JeffreyS. Chisholm. "NAFTA and the U.S. Election," Vital Speeches of the Day, Vol. 63, No. 5 (December 15, 1996). p. 143.
60 Matthew Miller, "Art of the Trade deal," U.S. News & World Report. September 15, 1997, pp. 41-43.
240
political and grassroots passions in the United States. The fact that the
President would use "fast-track" procedures to negotiate an FTA with
Mexico brought fast track under close congressional scrutiny for the
first time since this authority was established under the Ford
administration. 61 Organized labour and non-governmental
organizations (NGOs) working on environment issues joined hands to
build political opposition to the extension of the President's fast-track
authority. The early labour and environmentalist opposition and
attempts in Congress to exclude Mexico from coverage and restrict fast
track to the Uruguay Round by excluding Mexico brought U.S. business
to openly support NAFTA. According to I.M. Destler,
[Organized labour] particularly felt threatened by open trade with a 'low wage' neighbour: U.S. workers had already lost many low-skill, mass-production jobs to foreign competition, and a Mexico deal could only exacerbate this trend. Environmentalists worried that competition with Mexico would undercut U.S. environmental regulations by creating a 'pollution haven' for U.S. firms south of the border and leading to a relaxation of U.S. anti-pollution laws for competitive purposes. 62
America's NAFTA bashers had argued that low Mexican wages63
and poor enforcement of Mexican labour standards would attract U.S.
investment to Mexico, push U.S. workers of their jobs, and drive down
61 Under fast track, Congress cedes some of its own constitutional powers by restricting itself to voting only to accept or reject a negotiated trade agreement package within a time limit and without amendments. Unless the President has fast-track authority, few countries will be willing to negotiate FTAs with Washington for fear that they would unravel in Congress.
62 Destler, American Trade Politics, op. cit.. p. 99.
63 For example, the average hourly wage in Mexican manufacturing in 1991 was only about 14% ofthat in the United States: $2.17 in Mexico to $15.45 in the United States. U.S. Bureau of Labour Statistics, International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing. 1991. Report 825 (Washington. DC: Bureau of Labour Statistics, June 1992).
241
U.S. wages.64 The critics found handy the infamous "pauper labour"
theory which argues that imports from a poor country would reduce the
standard ofliving in the rich country. 65 Ross Perot exploited those fears
to the hilt during his presidential campaign in autumn 1993. In fact,
Perot's NAFTA bashing helped raise those concerns to a feverish pitch.
In the third presidential debate, Perot argued that equilibrium would
not be reached between the United States and Mexico until Mexican
wages rose to $7.50 an hour and U.S. wages plummetted to $7.50 an
hour. 66
Disproving Perot's claims, Mexico recorded its highest
unemployment rate in six years in the immediate aftermath of the
NAFTA coming into effect at the beginning of 1994. Nor was there an
evidence of an erosion of the U.S. manufacturing base as the NAFTA
critics had feared. 67 Mexican President Salinas sought to allay U.S.
concerns by introducing a plan to link average productivity gains to
periodic increases in the minimum wage.68 The pact's opponents had
contended that U.S. multinationals would be tempted to move
64 Jeff Faux and Thea Lee, The Effect of George Bush's NAFTA on American Workers: Ladder Up or Ladder Down? (Washington, DC: Foreign Policy Institute, 1992).
65 The "pauper labour" theory was mirrored by the Tariff Act of 1922, which significantly raised US tariffs after World War I, arming the President with the power to levy additional duties "to equalize costs of production" (the so-called "scientific tariff').
66 New York Times, October 20, 1992, p. A21.
67 In the first half of 1994, Mexico had 105,225 fewer jobs than in the corresponding year of the previous year. Another surprising fact was that 80% of the jobs lost were in manufacturing, as manufacturing production fell by 0.4% in the first half of 1994. In contrast, the U.S. National Association of Purchasing Management contended that the number of American manufacturing jobs grew faster in May 1994 than in the previous five years, and that production increased for the fifth consecutive month. Fernando Ortega Pizarro, "NAFTA: Bad News for Mexico?", World Press Review (September 1994), pp. 40-41.
68 Wall Street Journal, August 19, 1993, p. A6.
242
operations to Mexico to cut down costs of production. 69 As U.S. Trade
Representative Carla Hills pointed out. "If wages were the only factor,
many developing countries would be economic superpowers."70
In the period since the FrA became operational, it has shown that
not only has it not harmed the interests of U.S. labour, it has helped
create new American jobs. 71 The job losses claimed by NAFrA foes
make up less than 0.5% of the U.S. work force and less than a lOth of
the new jobs being created every year in the United States.
Technological changes, not NAFrA, have contributed to the declining
real wages of the unskilled, as they favour the trained over the
untrained. 72 According to Hufbauer and Schott, 'The major cause of job
dislocations in America is technological innovation, not trade
liberalization. Industries constantly need to develop new or improved
products ... NAFrA is but a small part of a revolution in the US labor
force --a revolution that will destroy and create tens of millions of jobs
in the decades ahead. "73
The environmental concerns of the critics have also not been
validated by the way NAFrA has functioned. Because of the strong
domestic environmental lobby, the Bush administration made
environmental protection a key subject in the negotiations with Mexico.
NAFrA has sought to address environmental concerns through the
Integrated Environmental Plan for the Mexican-US Border Area (the
69 This concern was expressed despite the evidence that in the EU. a great deal of foreign investment has gone to Britain, not the cheaper-wage Spain.
7° Carla Hills, United States Trade Representative, Speech to the Institute for international Economics, Washington D.C., September 21. 1992 (Washington, DC: USTR).
71 White House, Strategy of Engagement and Enlargement, op. cit., p. 28.
72 Bhagwati, "Which Way? Free Trade or Protection?", op. cit., pp. 22-23.
73 Gary Clyde Hufbauer and Jeffrey J. Schott. "Prescription for Growth," Foreign Policy, No. 93 (Winter 1993-94). p. 106.
243
"Border Plan"f4 and other bilateral and trilateral arrangements,
including a newly-established environmental protection commission.
NAFTA stands out as a "landmark accord for handling environmental
issues in a trade agreement. "75
The World Bank provided a $50-million loan to Mexico to
modernize and decentralize SEDESOL, the Mexican environmental
authority. 76 As part of the greater focus on enforcement, the number of
SEDOSOL inspectors jumped from 109 in 1991 to more than 300 in
1992, with two-thirds of them operating along the border with the
United States. 77 Under President Salinas, Mexico's environmental
budget was hiked seven-fold, with the result that by 1992 the nation
was spending 1% of its GDP on the environment -- a very high figure for
a developing economy. 78
II. ffiegal Immigration
NAFfA also raised a passionate debate in the United States on illegal
Mexican immigration. It spurred demands for immigration reforms,
better policing of the border with Mexico, and stiffer penalties for
trafficking in human beings and drugs. In the words of a senior
American trade official, 'To this day, NAFrA has become the 'flypaper'
74 Released in early 1992, the "Border Plan" aims to strengthen enforcement of existing environmental laws, reduce pollution through joint efforts and expand bilateral training programmes.
75 Hufbauer and Schott, NAFTA: An Assessment, op. cit., p. 91.
76 SEDESOL is the Secretariat of Social Development, which includes the former environmental agency, SEDUE. SEDESOL's enforcement budget climbed from a mere $4 million in 1989 to about $68 million in 1992.
77 As a result of strict enforcement, more than 200 Mexican plants in the
border region were shut down by late 1992 for non-compliance with environmental laws.
78 Journal of Commerce, August 24, 1992, p. 8A.
244
for all elements of the U.S.-Mexico relationship."79
A study by the U.S. National Commission for Employment Policy
had concluded before NAFTA was concluded that 4 to 5 million legal
and illegal Mexican immigrants were likely to enter the United States
during the 1990s irrespective of the FTA with Mexico.80 Out of that
number, NAFTA would, over the first five-year period, contribute to an
additional but insignificant flow of 100,000 migrants annually. 81
The small, short-run increase in the number of immigrants would
more than be offset by the long-term decline in legal and illegal
Mexicans entering the United States due to the fact that NAFTA would
help promote prosperity in Mexico. 82 This has been underscored by a
study by the consulting firm, CIEMEX-WEFA, which said that over the
first 1 0-year period the gross number of illegal immigrants could
decrease by 600,000 on account of economic growth stimulated by
NAFTA. 83 The National Commission for Employment Policy projected a
long-term fall in Mexican immigrants.84
As part of a major crackdown on the inflow of illegal Mexican
refugees, the United States has been activating border-fortification
measures, such as building steel barricades, digging concrete ditches,
79 Scher, Speech at the Georgetown University Law Centre, op. cit.
80 National Commission for Employment Policy, The Employment Effects of the North American Free Trade Agreement: Recommendations and Background Studies, Special Report (Washington, DC: National Commission for Employment Policy, 1992}, pp. 6-7.
81 Ibid.
82 See Philip L. Martin, Trade and Migration: The Case of NAFfA (Washington, DC: Institute for International Economics, 1992).
83 CIEMEX-WEFA, Perspectivas Economicas de Mexico, Bala Cynwyd (PA: CIEMEX-WEFA, December 1992), p. 15.
84 National Commission for Employment Policy. Employment Effects of NAFTA. op. cit., p. 7.
245
or placing electronic sensors along the long frontier with Mexico. 85
m. Intellectual Property Rights
Another area of concern to U.S. economic diplomacy in the NAFTA
negotiations was intellectual property rights (IPR). The enactment of
comprehensive patent and copyright laws in Mexico during mid-1991
helped ease U.S. concerns. The NAFTA negotiations on IPR, however,
continued to focus on how Mexico could continue with its reforms
process in this sphere. U.S. negotiators pressed Mexico to expand the
coverage of its existing national laws to new areas and resolve the long
standing bilateral disputes with America.
An important issue facing the NAFTA negotiators was how
effectively the new Mexican IPR laws would be enforced since past
experience had pointed to poor enforcement procedures in MeYJco. 86T£
sought concrete Mexican steps to improve national protection of
intellectual property rights. NAFTA calls for stringent enforcement of
IPR laws. U.S. economic diplomacy is hopeful that by closely
monitoring the implementation of the NAFTA enforcement provisions,
intellectual property protection in Mexico will be brought to the level of
the United States in the next few years. 87
NAFTA also resolved the U.S.-Canada dispute over compulsory
licensing of pharmaceutical patents. However, two major shortcomings
of the pact were the exemption of cultural industries from the purview
of NAFTA, and the exclusion of biotechnology inventions from
patentability. This leaves the two areas open to bilateral disputes and
85 The United States has also been helping Mexican security forces to more effectively police Mexico's southern border with Central America so as to stem the flow of Central Americans through Mexico into America.
86 An example of poor enforcement in Mexico was the large number of unauthorized music tapes sold there that constituted an annual loss of $75 million to U.S. producers. Financial Post, September 1, 1992.
87 Hufbauer and Schott, NAFTA: An Assessment, op. cit., p. 90.
246
acrimony. Due to the exemption of cultural industries from the NAFfA
rules on IPR. Canada can discriminate against U.S. cultural indust.J.ies
by denying national treatment or not providing the NAFfA minimum
level of protection. 88
APEC
The vital importance of the Asia-Pacific region to U.S. economic
interests89 led President Bill Clinton to convene in November 1993 the
first -ever summit of the leaders of the economies that make up the Asia
Pacific Economic Cooperation (APEC) forum. The leaders agreed to
create "a community of Asia-Pacific economies." The trade and
investment framework agreed to at that summit90 in Seattle is the
comerstone of the U.S.-fashioned "open regionalism" to be practiced by
APEC. 91
The following year in Indonesia, APEC leaders adopted the Bogor
Declaration to "achieve free and open trade and investment in the
region" by firm dates -- 2010 for the developed economies that
encompass 85% of all APEC trade, and 2020 for the rest. 92 This
88 The exemption allows Canada to maintain quotas on U.S.-produced films. Inter-Governmental Policy Advisory Committee for Trade, Report of the Inter-Government Policy Advisory Committee (IGPAC) on the North American Free Trade Agreement (September 1992). p. 39.
89 U.S. Council of Economic Advisers, Economic Report of the President (Washington, DC: U.S. Government Printing Office, 1995). pp. 230-31.
90 The Summit Declaration on an APEC Trade and Investment Framework, initiated by the United States, articulated a policy of open trade for APEC and has served as an important instrument to further define APEC's identity, expand its activities, and work out arrangements to facilitate the flow of goods, services. capital and technology within the region.
91 White House, Strategy of Engagement and Enlargement, op. cit .. p. 28.
92 The United States opposed the additional 10 years for the developing economies but China, Malaysia and South Korea succeeded in shielding that concession.
247
political commitment embraces half the global economy. making the
declaration one of the most momentous developments in trade history.
By the early 1990s, APEC contained many of the world's fastest -growing
economies, with a combined GOP of $13.2 trillion. 56% of the globe's
annual output and 46% of the world merchandise trade.93
A dmninant role in APEC is important for the United States in
order to continue to wield a strong influence in Asia-Pacific without the
cementing power of ideology in the post-Cold War era.94 U.S. trade with
the region now exceeds that with Europe. As APEC can significantly
impact on the American economy, it makes sense for the United States
to play an active and leading role in shaping the forum's strategy and
rules. After being a "talk shop" for years, APEC has emerged as a force
for trade liberalization under U.S.leadership. The economic integration
it seeks to promote can also help build a regional security architecture
congruous with U.S. interests.95
The significance of APEC has also been underscored by
projections showing that much of the coming growth in global trade and
national incomes will take place in the Asia-Pacific. making the 21st
century the "Pacific century". Before the recent series of economic
crises in the Asian "tigers," the Asian-Pacific economies were growing at
three times the rate of the established economies. Between 1960-91,
the share of the world GOP of Asian APEC members increased from 4%
93 John McKay, Marika Vicziany and John Ingleson, "APEC and East Asia: What Does it Mean for India?," Paper presented at the conference on "India and Australia: Economic Linkages. the India.'1 Ocean and APEC," New Delhi, November 24-29 November 1997, p. 2.
94 William Bod de, Jr., Senior Advisor. Pacific Basin Economic Council. Statement on APEC before the House Committee on International Relations. Subcommittee on Asia and the Pacific and Subcommittee on Economic Policy and Trade, November 9, 1995 (Washington, DC: Pacific Basin Economic Council).
95 See William Cohen, U.S. Secretary of Defence, "Security and Defence Cooperation: Practical and Substantive Unilateral, Bilateral and Regional Steps," Speech to the Pacific Dialogue Session on Security, Kaula Lumpur. January 12, 1998 (Washington, DC: Department of Defence).
248
to 25%.96 By the year 2000. East Asian economies were projected to
emerge as the largest market in the world, surpassing West Europe and
North America. More U.S. goods and services flow to the dynamic
economies of the Pacific Rim than to any other region.97 Moreover,
APEC includes the three largest global economies and six of the world's
top 10 traders.
The so-called Blake Island Economic Vision, endorsed at the first
summit held at Seattle's Blake Island, unveiled APEC's doctrine of "open
regionalism", which pledged to promote further liberalization of the
multilateral trading system while harnessing the energies of its
constituent economies to build prosperity and strengthen cooperation.
The Seattle summit was an important landmark for U.S. economic
diplomacy.
The establishment of APEC,98 however, was a slow and lengthy
process. The idea of a pan-Pacific economic organization was first
mooted by Japanese policy analysts in the 1960s. However, it was not
until U.S. foreign economic policy began taking interest in Asia-Pacific
cooperation in the 1980s that some initiatives started to emerge. A
Pacific Economic Cooperation Committee at the "track II" or non
governmental level was established. Slowly, the Asia-Pacific economic
dialogue acquired an official tint.
A major step towards a more formal status was the establishment
of the so-called "6 + 5" meeting of the ASEAN Post-Ministerial
Conference, bringing together the then six ASEAN members with five
developed Asia-Pacific countries. In 1989, Australia-- a close ally of the
96 Dick K. Nanto, APEC and Free Trade in the Asia Pacific, CRS Report for Congress, December 18, 1995 (Washington, DC: Congressional Research Service).
97 Office of the United States Trade Representative, The President's Trade Policy Agenda: The 1996 Agenda (Washington, DC: USTR, March 27, 1996).
98 One motivation for U.S. diplomacy to take deep interest in the creation of APEC was to prevent trade and economic issues in the Asia-Pacific region from becoming hostage to security-related differences.
249
United States -- suggested the formation of a formal inter-government
economic grouping in Asia-Pacific. 99 While the Seattle summit brought
Heads of Government together for the first time under the APEC
process, the specific objectives ofAPEC were outlined in the 1991 Seoul
Declaration. 100
According to C. Fred Bergsten, Director of the Institute for
International Economics, Chairman of the Competitiveness Policy
Council and Chairman of the APEC Eminent Persons Group, APEC is
not a customs union or a trading bloc like NAFrA. Rather it is a forum
that is trying to get more organized and focused, and has the potential
to achieve the most sweeping open-trade arrangement in history that
would commit "half the world economy to eliminate all barriers to
exchange among them." 101 Also, issues which so far have not been
resolved at the global level have found a place in the APEC agenda.
"APEC is, in essence, considering a wholly new model of regional
economic cooperation: A steady ratcheting up of trade liberalization
between the regional and global levels that would confirm its dedication
to ·open regionalism'." 102
APEC has already emerged as a major catalyst for trade and
investment liberalization and for integration in the Asia-Pacific region.
Initially, the forum consisted of 12 nations-- the United States, Canada,
Australia, New Zealand, Japan, South Korea and the ASEAN six. Over
99 McKay, Vicziany and Ingleson, "APEC and East Asia," op. cit., p. 2.
100 The Seoul Declaration listed four APEC goals: To sustain the growth and development of the region for the common good of its people; to enhance economic interdependence, including the stepped-up flow of goods, services, capital and technology; to reduce barriers to trade in goods and services and to investment among constituent economies; and to promote further liberalization of the global trading system in the interest of Asia-Pacific and all other regions.
101 C. Fred Bergsten, "APEC in 1996 and Beyond: Sustaining Credibility at Subic," Economic Perspectives, Vol. 1, No. 16 (November 1996).
102 C. Fred Bergsten, "APEC and World Trade: A Force for Worldwide Liberalization," Foreign Affairs, Vol. 73, No. 3 (May /June 1994), p. 20.
250
time, it was expanded to include China, Hong Kong and Chinese Taipei
(Taiwan) and then later Mexico, Papua New Guinea and Chile to become
a grouping of 18. The recent APEC decision at the November 1997
Vancouver summit'03 to include three more countries, including Russia,
but not India, and to freeze further enlargement of the forum for 10
years, was an important setback for Indian economic diplomacy. 104
The United States remains by far the single most powerful player
in the APEC process. It also has vital commercial interests at stake in
the Asia-Pacific region. "U.S. initiatives in APEC will open new
opportunities for economic cooperation and permit U.S. companies to
expand their involvement in substantial infrastructure planning and
construction throughout the region." 105 If APEC succeeds in its goals,
"the United States would establish free trade with nations, such as
Japan and China, that are responsible for about half of the U.S. trade
deficit and which account for many of the U.S. trade problems." 106 The
importance of APEC for U.S. commercial interests has been nicely
summarized by then-U.S. Trade Representative Mickey Kantor in these
words:
When you combine the U.S.-Canada-Mexico-Chile free trade area with our other 14 partners in Asia, what we have are the most dynamic economies on the earth, representing well over 2 billion people, $16 trillion in income a year, 50% of the world's GDP, and 50% of the world's trade. 107
103 Jon Schaffer, "APEC Ministers to Seek Tariff Elimination in 15 Sectors," USIA Wireless File, November 25, 1997, pp. 25-26.
104 Only seven APEC members can be regarded as industrial economies -the United States, Australia, Canada, Japan, South Korea, Singapore and Hong Kong.
105 White House, Strategy for a New Century, op. cit., p. 16.
106 Nanto, APEC and Free Trade, op. cit., Summary.
107 Mickey Kantor, U.S. Trade Representative, "Launching a New Phase in APEC's Evolution," Opening Statement at Joint Press Conference at Manila, the Philippines, U.S. DepartmentojState Dispatch, Vol.7, No. 48 (November 25,
251
America's aggressive drive for an exports-led economic boom
means that it has to pay close attention to the trade and investment
opportunities in the fast-developing Asia Pacific region. U.S. exports to
the region support millions of American jobs. 108 The U.S. trade deficit
with China has been soaring, 109 while the trade imbalance with Japan
remains very high. The trade imbalance with Asian economies 110 has
been a cause of deep concern to U.S. policy-makers, 111 spurring
American diplomacy to assertively seek the opening of markets in the
region.
The United States' APEC initiatives seek to complement its
bilateral efforts to gain greater market access in the region. For
example, aggressive bilateral trade diplomacy has resulted in 31
market -opening agreements with Tokyo between 1993-97 and a 41%
increase in U.S. exports to Japan between 1993-96. Similarly, U.S.
economic diplomacy is actively pursuing a broad range of market-
1996). p. 590.
108 In 1996, three-fifths of all U.S. exports went to APEC economies, and 30% to Asian nations alone, according to U.S. Commerce Department statistics.
109 In light of China's surging $44 billion trade deficit with America, Washington has demanded major Chinese tariff cuts and market-opening measures as a quid pro quo for supporting Beijing's entry into the wro. As a result of American stonewalling, China missed its own self-imposed deadline for WfO membership of January 1, 1995. U.S. Congress, House Committee on International Relations, Subcommittees on International Economic Policy and Trade and Asia and the Pacific, The U.S. -China Intellectual Property Rights Agreement: Implications for U.S.-Sino Commercial Relations, Joint Hearing, 104th Congress, 1st Session, March 2, 1995 (Washington, DC: Government Printing Office, 1995). p. 54; and Thomas Omestad, "Jiang, Clinton and Abe Lincoln," U.S. News & World Report, November 10, 1997, pp. 67-68.
110 In 1994, 86% ofthe $151-billion U.S. deficit in merchandise trade with the world was with APEC Asia.
111 Americans attribute the massive trade imbalance to Asia's more exportoriented production, with highly protected domestic markets secured behind trade baniers. See John Mathew Culbertson, The Trade Threat and U.S. Trade Policy (Madison, WI: 21st Century Press, 1989).
252
opening initiatives with China, including the elimination of its multiple
and overlapping barriers to American exports of industrial goods,
agricultural products and services. 112 In the context of APEC, China
has taken some important steps towards trade liberalization. With
effect from October 1, 1997, for example, it slashed its average tariffs by
1 7% as a step towards meeting its APEC commitment of a 15% average
tariff by the year 2000. 113 APEC thus provides a valuable platfom1 for
U.S. foreign economic policy to achieve its bilateral objectives with the
important regional economies.
The serious economic problems buffeting Asia since autumn 1997
may make some APEC nations recognize some flaws inherent in the
development model they have pursued with a heavy role for the state.
However, some Asian states may blame the big fall in their cuiTencies
and stocks on too much and too rapid economic liberalization and could
shirk away from APEC's free-trade agenda. 114 U.S. economic diplomacy.
however, has seized upon Asia's economic travails to goad the affected
economies to move towards faster market liberalization. For these
countries, APEC, with its emphasis on consensual decision-making and
collective goodwill, is politically a more palatable forum for undertaking
trade and investment liberalization and for making their economic
policies more market friendly.
U.S. economic diplomacy can be expected in the coming years to
use APEC as an important instrument for promoting American-style
capitalism and advancing commercial interests in Asia-Pacific by
encouraging greater trade and investment liberalization in the region.
112 Omestad, "Jiang, Clinton and Abe Lincoln," op. cit., p. 68.
113 Office of the United States Trade Representative, Identification of Trade Expansion Priorities Pursuant to Executive Order 12901, Report of October 1, 1997 (Washington, DC: USTR, 1997).
114 There is also the danger of an anti-American backlash over the role of the IMF and Western currency speculators. Michael Richardson, "Fresh Warnings That U.S. Risks Asian Backlash," International Herald Tribune. January 12, 1998, p. 1.
253
As the U.S. Chamber of Commerce has stated, "APEC is emerging as an
important forum for making governmental policies more business
friendly and this is clearly in the interest of U.S. business and
workers." 115 The chamber, however, recognizes that APEC is only one
of many tools that the United States must utilize to promote its
commercial interests in Asia-Pacific.
The United States has major economic and political stakes in a
successful APEC. If the forum's bold liberalization initiatives are fully
implemented and it emerges as a decisive force for regional prosperity
and stability, it will greatly aid U.S. commerce, 116 creating millions of
new high-paying jobs in the American export industiy. APEC will also
help enhance the effectiveness of America's bilateral and multilateral
economic diplomacy. APEC free trade may lead to more Asian exports
being absorbed within Asia rather than being directed at the American
market.
Strategically, too, APEC can assist U.S. post-Cold War objectives
in Asia-Pacific as it is the first trans-Pacific institution with the potential
to replace hostilities of the past with constructive economic
cooperation. 117 With Russia's entiy, APEC brings together the winners
and losers of the Cold War on a single platform to compete
economically. 118 APEC also provides an important mechanism for
115 Williard A. Workman, U.S. Chamber of Commerce, Statement on "AsiaPacific Economic Cooperation (APEC): Goals and Opportunities for US Participation," in U.S. Congress, House Committee on International Relations. Subcommittees on International Economic Policy and Trade and Asia and the Pacific. Countdown to Osaka: Asia-Pacific Economic Cooperation or Confrontation?, Joint Hearing, 1 04th Congress. 1st Session. November 9. 1995 (Washington. DC: Government Printing Office. 1996), p. 81.
116 Council of Economic Advisers, Economic Report of President. op. cit., pp. 230-31.
117 Bergsten, "APEC and World Trade," op. cit.
118 "As part of the larger effort to encourage Russia to sustain political and economic reforms and a pro-Western foreign policy, U.S. officials have facilitated Russia's dealings with the IMF and the G-7, and have provided funds and technical support to assist Russia in dismantling nuclear weapons and in making the transition to a market economy." Michael Mastanduno. "Preserving the Unipolar Moment: Realist Theories and U.S. Grand Strategy .,rt.,.r th.,. rnlri 'XT-:>r " Tnfornr.t;,....,,.., c;:,,.., .. -.;h. ,,,..., f) 1 1\T,-. A rc~..-:~r< 1 ()("\''7\ - 0"
254
Washington to constructively engage China and deter its rise as a
hostile power challenging unipolarity in the international order. 119
APEC is the only international forum in which the three Chinas (China,
Taiwan and Hong Kong) come together. As a consensus-driven
institution, APEC avoids discussions on politically contentious issues,
but its meetings and summits provide opportunities for quiet, infonnal
dialogue on international security, human rights and other issues. 120
Results to date
The Seattle summit marked the inauguration of an annual meeting of
APEC Heads of Government, with the last-held summit in Vancouver in
late 1997 paying close attention to how financial stability in Asian
markets could be restored. In the inaugural summit, President Clinton
and other APEC leaders said the meeting reflected the "emergence of a
new voice for Asia-Pacific in world affairs" at a time when their
"economies are moving toward interdependence and there is a growing
sense of community among us." 121 As Clinton said, changes in Asia
Pacific had transformed regional economies from "dominoes to
dynamos".
The Seattle summit began the process of turning APEC from a
purely consultative body into a major regional trade institution. The
agreement on the need for extensive liberalization measures aided the
successful completion of the Uruguay Round in December 1993 after
seven years and three "final" deadlines. Seattle helped initiate a
proliferation of high-level meetings among APEC officials with different
areas of economic responsibility on the assumption that such "sessions
119 See Joseph S. Nye, Jr., 'The Case for Deep Engagement," Foreign Affairs, Vol. 74, No.4 (July/August 1995).
120 Nanto, APEC and Free Trade, op. cit., p. 7 ..
121 "Focus on Asia-Pacific Economic Cooperation: Summary of November 1993 Meetings," U.S. Department of State Dispatch, Vol. 5, No.5 (January 31, 1994), p. 49.
255
Will nurture the Asia-Pacific identity and habit of cooperation." 122
In the 1994 Bogor Declaration, APEC leaders resolved to remove
impediments to economic integration, with the industrial economies
pledging to eliminate such barriers by 2010, a decade ahead of the time
given to the developing economies. The Bogor Declaration incorporated
APEC's guiding principles: Comprehensive coverage, comparability,
transparency, and wro consistency. 123
The 1995 Osaka summit, by initiating implementation, marked
the second stage of APEC's evolution. 124 The Osaka Action Plan "sets
out the principles, the menu of issues, and the timetables through
which APEC's political commitments will be translated into tangible
results." 125 The Action Agenda is the template for achieving
liberalization, facilitation and cooperation. 126 While furthering regional
growth through trade and investment liberalization and facilitation, the
so-called TILF activities, APEC would also promote sustained and
equitable economic development through economic and technical
cooperation, the so-called Ecotech activities. ! 27 The leaders at Osaka
committed themselves to a series of liberalization steps, or "down
payments" on open trade and investment.
122 Bergsten, "APEC and World Trade," op. cit., p. 22.
123 'Comparability' means that each economy should be moving towards APEC's open-trade and investment goals in a comparable manner, while 'comprehensive coverage' implies no exclusions for sensitive sectors. Japan and South Korea, for example, wanted to exclude agricultural liberalization from the APEC agenda.
124 See U.S. Congress, Countdown to Osaka: Asia-Pacific Economic Cooperation or Confrontation?, op. cit.
125 Bergsten, "APEC in 1996 and Beyond," op. cit., p. 1.
126 Asia Pacific Economic Cooperation. The Osaka Action Agenda (Singapore: APEC Secretariat. November 19. 1995).
127 To narrow the development gap and promote equitable growth. the industrial economies had agreed at Bogor to try and provide special opportunities to the developing economies of APEC.
256
While Seattle gave APEC its vision, Bogor its goal and Osaka its
blueprint, 128 Manila unveiled its detailed road map to achieving open
trade. This is incorporated in the 1996 Manila Action Plan for APEC,
or MAPA. The MAPA requires the APEC countries to reduce the cost of
doing business by eliminating administrative burdens and overcoming
technical barriers. Member-countries have already made progress in
simplifying and harmonizing customs practices and agreeing to the
target of a region-wide customs system by the year 2000.
The Manila summit revealed disappointing progress in charting
comprehensive liberalization programmes. Under the Osaka accord,
each APEC economy was to prepare detailed, step-by-step individual
action plans (lAPs) which would be its road map to free trade by
2010/2020. 129 APEC members were also to develop collective action
plans (CAPs) through which the group would "move together to facilitate
trade and investment in the region." 130 It became clear at the Manila
summit, which was to approve the lAPs and CAPs, that the two were
proceeding too slowly. U.S. officials, however, cited tariff cuts by
Indonesia in sectors of substantial interest to America, like scientific
equipment, pulp and paper products, and automotive parts, as evidence
of good progress on lAPs by some APEC countries. 131 Likewise, in the
case of the CAPs, a good example of their progress was the expanded
128 Secretary of State Warren Christopher, "A Pacific Future of Prosperity and Stability: Sustaining APEC's Remarkable Momentum," Intervention at APEC Ministerial Meeting, Manila, the Philippines, 22 November 1996, U.S. Department of State Dispatch, Vol. 7, No. 48 (November 25, 1996), p. 586.
129 The individual road maps are important in the APEC context since the forum is founded on the concept of "concerted unilateralism," the idea that if each economy voluntarily progressed towards liberalization, the competitiveness of the market-place will ensure that there are no holdouts and the group achieves comprehensive integration.
130 Bergsten, "APEC in 1996 and Beyond," op. cit., p. 2.
131 Secretary Warren Christopher and Ambassador Charlene Barshefsky, Joint Press Conference onAPEC Manila Summit, November 25, 1997, Official Text (Washington, DC: Department of State).
257
Internet access to APEC customs and other tariff databases to help
businesses cut transaction costs and time.
U.S. economic diplomacy set a major milestone at Manila when
it got APEC to endorse an Information Technology Agreement (ITA) to
eliminate by 2000 all tariffs on goods in this high-tech sector, including
semiconductors and computer hardware and software. The United
States, with its distinct competitive edge in this field, was pushing hard
to win APEC's backing for ITA since the agreement was high on the
agenda of the then forthcoming wro trade ministers' meeting in
Singapore. U.S. diplomacy was prodding "APEC in effect to challenge
other WfO members, including the EU, to join" the forum in concluding
the ITA in Singapore. 132
As APEC makes up 80% of the global trade in information
technology (IT) products, its support provided critical to the eventual
success in getting the WfO to approve the ITA -- the Clinton
administration's main 1996 trade initiative. 133 The IT sector has been
growing dramatically, significantly boosting U.S. exports. In 1990,
world trade in IT products totalled about $350 billion, but by 1995, it
had risen to half-trillion. By the year 2000, it should jump to $800
billion. 134
The 1997 Vancouver summit was marked by U.S. diplomacy
pushing a set of objectives. By involving the APEC finance ministers,
the United States persuaded the forum to play a role in restoring
financial stability in Southeast Asia. U.S. diplomacy, pushing for
commercial opportunities in infrastructure-related goods and services,
sought to accelerate the identification of sectors under APEC's Early
Voluntary Sectoral Liberalization programme. It also sought APEC's
support for Clinton's Electronic Commerce Initiative, which identifies
132 USIA Wireless File, November 25, 1997, p. 29.
133 White House, Report to Congress on Future Free Trade Area Negotiations. op. cit.
134 Figures cited in Secretary Christopher, "A Pacific Future of Prosperity and Stability," op. cit., p. 588-89.
258
issues ranging from tariffs to intellectual property rights to promote
continued expansion of this leading-edge sector. 135
U.S. officials pressed for mutual recognition agreements (MRAs)
to reduce the adverse trade impact of divergent national product
standards that led, for example, to the re-testing of American
telecommunications equipment. The Vancouver agenda also included
climate change and the environment. According to Ambassador John
S. Wolf, U.S. Coordinator for APEC, "Environmental threats -- as we
have learned graphically from the terrible fires and haze affecting
Indonesia and Malaysia and much of the region. and other more
gradual threats such as marine and coral-reef degradation, and global
climate change -- threaten to undermine our collective future. These
threats demand our joint action." 136
At Vancouver. APEC trade ministers agreed to seek the
elimination of tariffs in 15 sectors during the next several years. The
Asian economic crisis, however, has cast a cloud on the decision to use
the ITA as a model to conclude agreements by the end of 1998 on nine
of the sectors -- chemicals. energy-related equipment and services.
environmental goods and services, fish and fish products, forest
products, gems and jewelhy, medical equipment. telecommunications
equipment, and toys. 137 The other six sectors -- automotive, civil
aircraft, fertilizers, food, natural and synthetic rubber, and oilseeds -
are to be negotiated later.
135 APEC trade ministers at Vancouver committed themselves to accelerate a work plan on global electronic commerce. U.S. Trade Representative Charlene Barshefsky. Vancouver Press Briefing, November 23, 1997, Official Text (Washington, DC: USTR).
136 Transcript of APEC Coordinator Wolfs USIA Worldnet interactive dialogue. October 22, 1997, USIA Wireless File, October 23, 1997, pp. 68-70.
137 Jon Schaffer, "APEC Ministers to Seek Tariff Elimination in 15 Sectors," USIA Wireless File, November 25, 1997, pp. 25-26; and Bruce Odessey, "APEC Trade Negotiations Looming as Asian Crises Continue." USIA Wireless File, January 11, 1998, pp. 16-17.
259
Challenges ahead
As a giant organization with diverse sets of members, APEC faces
unique challenges. The success of APEC would serve as a litmus test
of the ability of countries to overcome major national and political
differences and forge econorpic interdependence. APEC's success would
also send a loud and clear message to the rest of world that the North
South divide can be bridged to sizable extent through cooperative
mechanisms. As a grouping that includes Western nations, Moslem
countries, Latino states, Confucian societies and the distinct Japanese
culture, APEC's success would disprove Samuel Huntington's thesis
that such dissimilar civilizations are more likely to clash than to
cooperate. 138
For U.S. economic diplomacy, too, APEC presents important
challenges. The United States, which "has played a pivotal role in
shaping APEC," 139 has no choice but to continue pursuing an activist
trade policy in the region in the face of fierce commercial competition
from important Asian economies, such as China, Japan, South Korea,
Taiwan and ASEAN states. These economies are "engaged in
aggressively expanding their trading networks and opportunities." 140
With U.S. exports to Asia's developing economies growing 30% between
1994-96, Washington is particularly interested in expanding its
commercial access to markets in that region to help underpin the
American economic recovery since 1991.
The Asian economic crisis has cast a shadow over the momentum
and credibility of the APEC process. "Most Asian members of APEC
have developed through explicitly interventionist policies, and there are
likely to be many voices calling for a retreat from the APEC free-trade
agenda and a return to the more comfortable and tried methods of the
138 See Samuel Huntington, The Clash of CivUizations and the Remaking of World Order (New York, NY: Simon and Schuster. 1996).
139 White House. Report to Congress on Future Free Trade Area Negotiations. op. cit.
140 Ibid.
260
'Asian way'." 141 The harsh conditionalities imposed by the U.S.-led
International Monetary Fund through its bailout packages 142 and the
role of Western currency speculators in the crisis could build popular
resistance in Asia to APEC's liberalization drive and fuel trade
protectionism. 143 The crisis-tom Asian economies may want greater
Asian solidarity and seek to shift their focus from the Asia-Pacific to
Asia, bringing the APEC process under pressure. 144
The Asian crisis has also put the spotlight on the role the APEC
community can play in restructuring and strengthening financial
institutions in the region. The APEC members need to cooperate to
foster efficient and stable capital markets because huge investments are
required to sustain the region's high economic growth. Policies to
promote private financing for large projects should be formulated as the
funding needs of some sectors, particularly infrastructure. are beyond
the resource capacities of governments. 145 Government procurement is
another significant point at issue as APEC economies need fair
competition from global suppliers to save on infrastructure-development
costs. U.S. diplomacy is pushing for more transparent government
procurement practices.
APEC's efforts to galvanize its liberalization programmes are likely
to continue to run into political difficulties in some sensitive sectors,
141 McKay, Vicziany and lngleson, "APEC and East Asia," op. cit., p. 5.
142 Robert Kuttner, "Dr. IMF Prescribes Recession for Some Patients," International Herald Tribune, January 6, 1998.
143 Helene Cooper, "Asia Crisis May Fuel Trade Protectionism," Asian WalL Street Joumat January 19, 1998, p. 1.
144 Malaysian Prime Minister Mahathir Muhammad has for long been advocating greater Asian solidarity through the formation of an East Asian Economic Caucus (EAEC). comprising only APEC's Asian members with Japan assuming the mantle ofleadership. See Richard P. Cronin, 'Asian Values' and Asian Assertiveness: Implications for U.S. Interests and Policy, CRS Report for Congress, July 9, 1996 (Washington, DC: Congressional Research Service).
145 According to World Bank estimates, infrastructure development inAPEC economies would demand $2 trillion over the next two decades.
261
particularly agriculture. The lAPs, or individual road maps to
liberalization, allow states to defer action on touchy issues until a
politically more expedient time, such as after national election. But
such a time may not arrive. Such challenges have prompted APEC to
turn more towards its ecotech agenda, which involves sharing of
knowledge and technical expertise in infrastructure and sustainable
development.
GATT
U.S. trade diplomacy received a major boost with the successful
completion of the Uruguay Round of multilateral trade negotiations
(MTN) under the General Agreement on Tariffs and Trade (GATT). This
has been one of the biggest international developments in the post -Cold
War era. The December 15, 1993, conclusion of the GATT accord
"fulfilled a major trade and foreign-policy objective of the Clinton
administration." 146 The Uruguay Round clearly showed that the United
States remains the unchallenged leader of the multilateral trading
system, which it helped fashion after World War II. Not only did
America play a pivotal role in the Uruguay Round negotiations, it
influenced even the timing of the agreement. The accord was
concluded 147 on the last day of the time-limit given by the U.S. Congress
to the administration to conclude an agreement that would receive "fast
track", amendments-free consideration. 148
146 Richard P. Cronin and Paul E. Gallis. The GAIT Accord: Implications for U.S. Foreign Policy. CRS Report for Congress. February 23. 1994 (Washington. DC: Congressional Research Service). p. l.
147 The formal signing ofthe 26,000-page Uruguay Round accord took place on April 15. 1994. General Agreement on Tariffs and Trade (GATD. The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (Geneva: GATI Secretariat. 1994).
148 See Lenore Sek, Trade Negotiations: The Uruguay Round, CRS Issue Brief 8614 7. updated periodically (Washington, DC: Congressional Research
262
The role of liberalized trade in boosting national incomes in the
world's major trading nations since after World War II contributed to the
longevity of GATI as an international institution. Although trade
liberalization is never the sole factor in economic success, the publicly
perceived connection between freer trade and national growth helped
GAIT-- founded on the twin principles of multilateralism and free trade
--to survive as an institution. GATI, as the institutional apotheosis of
the American-led liberal world trade order, came into being in 1947
following the U.S.-sponsored establishment of the Bretton Woods
financial system. 149 The Bretton Woods-GATI international economic
system was created when most oftoday's Third World nations were still
not free. 150
Under the GAIT treaty, contracting parties undertook to observe
specific rules and principles on international trade and to participate in
periodic rounds of MTN to reduce trade barriers. The MTN rounds
helped create a global economy by progressively lowering tariff barriers
and curtailing protectionism. 151 The Geneva-based GATI and the MTN
rounds have greatly inspired national and international debate on trade
and economic issues.
As long as the United States remained ensconced as the world's
undisputed economic hegemon, it found the GATI regime to be working
very well. Mter all, a "Pax Americana had succeeded the Pax Britannica
Service).
149 The GAIT was supposed to be a forerunner to the International Trade Organization (ITO). conceived as a specialized agency of the United Nations. The ITO, however, was stillborn.
150 Ernest H. Preeg. 'The Decline of the North-South Dichotomy: Policy Implications for a Changing International Economic Order," in John Yochelson (ed.), Keeping Pace: U.S. Policies and Global Economic Change (Cambridge. Ballinger, 1988). p. 78.
151 See Donald Altschiller (ed.). Free Trade versus Protectionism (New York. NY: H.W. Wilson Co., 1988).
263
of the 19th century." 152 In fact, in the first quarter century after its
establishment, America used its economic dominance in the world to
achieve political and security objectives and fully integrate its allies in
the Bretton Woods-GATI system.
The decline of relative U.S. economic power since the 1970s,
coinciding with the disintegration of the Bretton Woods arrangements,
made American policy-makers reappraise the effectiveness of the GATI
regime. 153 By the 1980s, with the rise of Japan and West Germany as
economic superpowers, the United States felt economically
beleaguered154 and was eager to refashion the GATI system in ways that
it would confer fewer advantages to its rivals but aid its commercial
interests in areas where it enjoys a competitive edge. America thus
dominated the Uruguay Round negotiations after they began in
September 1986.
From a loyal, unswerving commitment to multilateral free trade,
the United States shifted to a more broad-based trade policy that added
"aggressive unilateralism" and regionalism to its agenda while still
supporting the GA1T regime. 155 Beginning from the mid-l980s, its
multilateral commitment has "coexisted uneasily" with regional and
unilateral liberalization efforts, "notwithstanding the fact that U.S.
tactics have been widely perceived abroad as damaging to the credibility
of U.S. diplomacy and the multilateral system." 156
152 Jagdish Bhagwati, Protectionism (Cambridge,!-! .. ...'\: MIT Press. 1988), p. 2.
153 See Laura D'Andrea Tyson, Who's Bashing Whom? Trade Conflict in High Technology Industries (Washington, DC: Institute for International Economics, 1992).
154 "Beleaguered Uncle Sam," International Currency Review, Special Issue, Vol. 18 (October 1987).
155 Bhagwati, "United States Trade Policy at Crossroads," op. cit., pp. 439-479.
156 Mastanduno, "Preserving the Unipolar Moment," op. cit., p. 80.
264
After its triumph in concluding the Uruguay Round Agreements
(URAs). U.S. foreign economic policy is disinclined to support the start
of a new MTN round. Rather it wants to consolidate the commercial
gains from the URAs by being vigilant about their global implementation
and by seeking further agreements in sectors where America is most
competitive. 157 The URAs will reduce tariffs by 40% and extend
multilateral-trade rules to the three sectors where the United States has
high commercial stakes -- intellectual property rights, services and
agrtcul ture.
The Uruguay Round involved the toughest and lengthiest
multilateral trade negotiations ever. As a Congressional Research
Service report acknowledges, ''The accord is generally believed to favour
the interests of the developed over the less developed world." 158 For the
United States, the Uruguay Round completion carries important trade
and foreign-policy benefits and reaffirms its position as the leader of the
global trading regime. It is likely to aid its diplomatic efforts to integrate
the ex-Soviet bloc into the U.S.-led world economy.
The seven MTN rounds that preceded the Uruguay Round
significantly cut tariff levels in the developed economies. "By the early
1980s, the tartfflevel had gone down to 4.9% in the United States, 6.0%
in the European Economic Community and 5.4% in Japan." 159
157 White House, Strategy for a New Century. op. cit., p. 15.
158 Cronin and Gallis, GAIT Accord: Implications for U.S. Foreign Policy, op. cit., p. 2.
159 Bhagwati, Protectionism, op. cit., p. 3.
265
TABLE I
Eight major rounds of multilateral trade negotiations (MTN) have been held under the GATT to tariffs and other international-trade barriers. The Uruguay Round was the longest and most fractious. It led to the establishment of the WTO as GAITs successor.
1947 Geneva
1949 Annecy, France
1950-51 Torquay, England
1956 Geneva
1960-61 Geneva (Dillion Round)
1963-67 Geneva (Kennedy Round)
1973-79 Geneva (Tokyo Round)
1986-93 Geneva (Uruguay Round)
Tariff reductions
Tariff reductions
Tariff reductions
Tariff reductions
Tariff reductions
World industrial tariffs reduced by a third; antidumping measures.
Tariff, non-tariff and framework agreements.
Largest-ever package of market-access concessions; trade in services and intellectual property included; agreement to replace GATT with WfO.
The 1963-67 Kennedy Round slashed tariffs by an average of 50%
across the board on internationally traded manufactured goods. U.S.
import duties fell by an average of 35%. 160 The next MTN round took
place in the 1970s, a troubled decade that witnessed a sharp focus on
160 John W. Evans, The Kennedy Round in American Trade Policy: 11w Twilight of the GATT? (Cambridge, Harvard University Press, 1971). p. 7.
266
fmancial economy rather than real goods economy. 161
The 1973-79 Tokyo Round continued with the GATI tariff-cutting
exercises. However, a central goal for U.S. diplomacy in the Tokyo
Round was to discipline trade-distorting subsidies. Due to America's
role, the Tokyo Round did lead to agreement on a number of "codes" to
restrict government practices that affect trade in such areas as product
standards, official procurement and export subsidies. However, the
codes were riddled with loopholes or were not implemented by all the
major economies. For example, the "Subsidies Code" limiting export
subsidies on industrial products did not unambiguously define domestic
subsidies and mixed export credits. 162
The tariff cuts of the Kennedy Round and Tokyo Round made the
American market so attractive for Asian manufacturers that foreign
goods began swamping the United States. An1erica's foreign trade
jumped from 11% of GOP to more than 20% of GOP during this
troubled decade.
With the United States facing stiff competition from overseas
producers in its own markets, its economic diplomacy became
defensive. "Japan, followed by the Asian tigers and then China, flooded
U.S. markets with toys, textiles, steel and automobiles. Many good
paying jobs in manufacturing -- both on the factory floor and in
professional suites -- disappeared." 163 As American politicians and
trade officials began talking about the influx of Japanese color television
sets and Korean and Taiwanese shoes, concern grew in the United
States in the second half of the 1970s about Japan's rising world trade
161 The 1970s were wracked by two oil crises.
162 Gary J. Hufbauer and Jeffrey J. Schott. "Improving U.S. Trade Performance," in John Yochelson (ed.). Keeping Pace: U.S. Policies and Global Economic Change (Cambridge. Ballinger. 1988). p. 234.
163 Morici, "Export Our Way to Prosperity," op. cit .. p. 5.
267
and current-account surplus. 164
Protectionist pressure started increasing from the 1970s. By the
late 1970s, non-tariff barriers (NTBs) had emerged as an major
impediment to the enforcement of GAIT's "rule of law." 165 The NTBs
included both politically-negotiated restraints on exports by main
trading partners -- the so-called "voluntary" export restraints (VERs)
that scoffed at the rules of multilateral free trade -- as well as the
misuse of countervailing duties (CVDs) and anti-dumping (AD)
provisions for protectionism. For U.S. economic diplomacy, VERs
became favoured instruments to halt the influx of Japanese goods,
particularly automobiles and steel in the 1980s, to protect domestic
industries from import competition. 166 The widespread use of extra
GAIT protective measures, including the use of Section 301 penalties
and anti-dumping actions by America, brought "into disuse" the GATI
safeguards system, 167 which provides an "escape-clause" provision for
temporary import relief for troubled industries.
As the United States confronted mounting intemational-trade
competition, the MTN route to lower-trade barriers came in for a lot of
criticism by American GAIT-sceptics, who felt the GATI had become a
spent-force and could no longer bring home the bacon. The critics
contended that Washington was jeopardizing the standard of living of
the American people and undermining America's global leadership "by
blindly following the false promises of free trade." 168 U.S. officials
164 Destler. American Trade Politics, op. cit., p. 109.
165 Bhagwati, Protectionism, op. cit., pp. 43-59.
166 See Charles Collyns and Steven Dunaway, 'The Cost of Trade Restraints: The Case of Japanese Automobile Exports to the United States," International Monetary Fund, staff papers, Vol. 34 (March 1987), pp. 150-175.
167 Hufbauer and Schott, "Improving U.S. Trade Performance," op. cit., p. 234.
168 John Mathew Culbertson, 'The Folly of Free Trade," Harvard Business Review, Vol. 64 (September-October 1986). pp. 122-128.
268
themselves began echoing concerns about how foreign competitors were
bending the GAIT's "rule oflaw" to their commercial advantage. Capitol
Hill convinced itself that in the postwar period, Americans had
recklessly given away many trade concessions. 169
It was against this background170 that the Uruguay Round MTN
began at Punta del Este in 1986. U.S. economic diplomacy, from early
on, began assertively promoting the American trade agenda in the
negotiations. The advanced industries economies dominated the talks,
with the disorganized, disunited developing world largely on the
sidelines until the final phase of the negotiations. Trade disputes
between the three main belts of capitalism -- the United States, EU and
Japan -- threatened to derail the negotiations on several occasions,
including at the 1990 "deadline" when America insisted on free
agricultural trade.
The "Dunkel Draft, "171 which served as the negotiating document
from 1991, underpinned America's trade priorities and agenda by
bringing new sectors like services and intellectual property rights (IPR)
within GATT's ambit. It also brought in agriculture and textiles, which
had until then been shielded. When the Dunkel Draft was finally
adopted in late 1993, few major changes had been carried out in its text
to meet the rising concerns of developing economies. The so-called
"Final Act" incorporated a series of major trade agreements, include on
goods, IPR, investment, services, textiles, agriculture and dispute
resolution.
169 Jean Cobb, 'Trade-Offs: Should Congress Crack Down on Foreign Imports," Common Cause, Vol. 12 (January-February 1986), pp. 48-52.
17° For details of the trade conflicts and concerns, see Douglas F. Lamont, Forcing Our Hand: America's Trade Wars in the 1980s (Lexington, MA: Lexington Books, 1986).
171 Named after GAIT Director-General Arthur Dunkel, who sought to speed up conclusion of the Uruguay Round by presenting his "Draft Final Act" incorporating what he thought were the points of agreement until then and what could be agreed upon by the parties in the MTN.
269
Uruguay Round Agreements (URAs)
The URAs constitute the largest and most comprehensive package of
trade accords in history. These are also unparalleled in the sense that
they go beyond the traditional GATI domain of rules-based open trade
and seek to implicitly regulate the macroeconomic policies of state
parties. The URAs "reach deeply into activities once considered
squarely within the domain of domestic policy." 172 These accords pave
"the way for a massive intrusion into what may be called 'the sovereign
economic space' of the developing countries." 173
The URAs seek to impose U.S.-style intellectual property
protection laws, 174 trade-related investment measures in the Westem
model, national treatment and right of establishment for foreign
providers of services, greater transparency in soliciting bids on
govemment contracts, and harmonized testing and product standards.
Agriculture has for the first time been included in the multilateral trade
system. Anti-dumping and countervailing anti-subsidy action are also
part of the URAs. In addition to the radical changes introduced in the
multilateral process, the Uruguay Round created a new global trading
body with teeth to enforce discipline and rules.
The URAs were an important victory not only for the United
States, but also for other advanced industrial economies, some of whom
have been buffeted by recession and growing unemployment. 175 The
less developed countries (LDCs). however, "have the least to gain" from
the accords, as a Congressional Research Service study states. "It may
diminish their prospects for economic growth and therefore for political
172 Morici, "Export Our Way to Prosperity," op. cit., p. 12.
173 Muchkund Dubey, An Unequal Treaty: World Trading Order After GAIT (New Delhi: New Age International Limited, 1996), p. 11.
174 For an analysis of the impact of IPR reforms, see United Nations, IPR and Foreign Direct Investment (New York, United Nations, 1993).
175 Doughlas Harbrecht with Susan B. Garland and Owen Ullman, "Delay Would Mean Death of GATT," Business Week, December 4, 1994, p. 35.
270
stability, thereby widening the North-South divide and contributing to
antagonisms with the developed world." 176 For a large developing
economy like India, the URAs hold important policy implications in
terms of establishing a balance between trade and investn1ent
liberalization and pursuit of self-reliant growth. 177
An important spur to the successful completion of the Uruguay
Round after three final "deadlines" was the rise of U.S.-initiated trade
unilateralism, reflected in the increasing resort to Section 301
diplomacy by Washington, and the growth of regionalism, underscored
by the advent of NAFfA and EU's moves towards greater political and
economic integration. For countries like Japan, which had been at the
receiving end of U.S. coercive economic diplomacy, the URAs offered a
better altemative. 178
However, not all the important issues got resolved in the Uruguay
Round. In addition to the lingering differences on some trade issues
among the "quadrilateral" economies (the United States, EU, Japan and
Canada), there was no agreement on the role of unilateral trade
penalties in the multilateral system. 179 The United States has persisted
merrily with its strategy of "aggressive unilateralism," routinely
brandishing the Section 301 stick to achieve trade objectives with
individual states.
176 Cronin and Gallis. GAIT Accord.: Implications for U.S. Foreign Policy, op. cit., p. 8.
177 See Dubey, Unequal Treaty: World Trading Order After GAIT. op. cit.
178 U.S. diplomatic pressure on Japan, however, has not eased despite the URAs. In fact, influential U.S. policy analysts have been goading Washington to "not let up on Japan. where markets are still difficult to penetrate." See Jeffrey E. Garten, "Business and Foreign Policy," Foreign Affairs. Vol. 76, No. 3 (May/June 1997), pp. 72-73.
~
179 Cronin and Gallis, GAIT Accord: Implications for U.S. Foreign Policy, op. cit., p. 8.
271
I. Services
The Uruguay Round's General Agreement on Trade in Services
(GATS) extends multilateral trade rules for the first time in history to
the fastest-growing component of the world economy. 180 The United
States has such a commanding competitive edge in this sector that its
trade in financial services alone --banking, insurance, securities and
financial data -- dwarfs the total services-related exports of the rest of
the world. In just insurance, U.S. companies in 1997 had more than
$200 billion in foreign premiums. 181
Achieving a comprehensive reduction in tariff and non-tariff
barriers in this sector was one of the primary goals of U.S. diplomacy
in the Uruguay Round. However, it became clear as the negotiations
gained momentum that a U.S. insistence on specific sectoral-access
agreements could imperil the conclusion of a broad framework accord.
Therefore, several service areas were taken out of the text and left for
follow-up negotiations to a GATS. 182 Even in those areas that remained
in the successfully concluded GATS, "the degree of liberalization
[promised] by specific countries varies widely." 183 GATS substantially
expands the "right of establishment" and carries important implications
for a country's development strategy, resource mobilization and
industrial policy.
180 The U.S.-dominated international trade in services is estimated to total some $900 billion.
181 USIA Wireless File. December 15, 1997, p. 35.
182 These included financial services, basic telecommunications, professional services, audio-visual, and maritime-transport services. In another area, relating to movement of service providers, an accord was reached in July 1995 under which the United States. EU and four other countries guaranteed new opportunities for qualified professionals to work temporarily on their soil.
183 Norbert Wieczorek. The Uruguay Round and the Next Agenda for Global Trade, Draft General Report (Brussels: North Atlantic Assembly, May 1994), p. 7.
272
n. Intellectual property protection
The trade-related aspects of intellectual property (TRIPS}
provisions, one of the URAs, has generated a lot of heat in some
countries, particularly Asian states whose national laws need to be
changed to conform to the new international standards. TRIPS aims at
global IPR standardization. But, according to a U.S. study, such
"standardization involves a loss of control over major domestic economic
policies. "184
Patent protection is one of the nine areas of intellectual property
that TRIPS seeks to regulate, the others being copyright, trademarks,
trade secrets, industrial designs, geographical labeling (such as Basmati
rice, Scotch whisky, etc.}, layout designs of integrated circuits, micro
organism patenting, and new plant varieties.
TRIPS requires that countries protect not just the process of
manufacturing but the product too. Protection is to be available for 20
years for patents and 50 years for copyrights. 185 Product patenting,
which is to apply to a range of technological areas like pharmaceutical
products and computer software. is not popular with several important
developing economies. Advanced industrial economies are armed with
the right -- an issue that will come up in future negotiations at the wro -- to exclude products based on "process methods" from their markets
and persuade other states to do likewise. 186
As the United States has a creative advantage in knowledge
intensive products and seiVices. it had for long been pressing for a
stringent intellectual property protection regime through multilateral.
184 Sumner J. La Croix, "Impact of Rise of Global Intellectual Property Rights on Asia," AsiaPacifte Issues (East-West Centre. Honolulu). No. 23 (August 1995).
185 See GAIT. Results of the Uruguay Round of Multilateral Trade Negotiations, op. cit.
186 Cronin and Gallis, GAIT Accord: Implications for U.S. Foreign Policy. op. cit., p. 7.
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bilateral and unilateral initiatives. The "Special 301" instrument was
designed for the purpose of gaining foreign compliance with U.S.-style
IPR laws and to stop overseas manufacturers from "reverse-engineering"
American products. It provides for a series of graduated steps -
"priority watch-list," "watch-list," and "designated" for inclusion in
watch-list-- to help escalate U.S. diplomatic pressure on recalcitrant
countrtes. 187 Since 1993, when accord on TRIPS was reached, U.S.
economic diplomacy has "used the 'Special 301' review of intellectual
property rights protection to secure improved protection in at least 10
foreign markets." 188 Another tool of punitive action wielded by the
United States on IPR matters has been the Generalized System of
Preferences. 189
Intellectual-property industries are among the more
internationally competitive ones in the United States. U.S. copyright
based industries have been growing at twice the annual rate of the
American economy. With the introduction of product patents by several
of America's trading partners from the 1970s190 and subsequently by a
number of other economies, exports of U.S. pharmaceuticals have also
risen impressively. 191 Strong U.S. pressure has influenced several Asian
countries to strengthen their IPR laws and enforcement. U.S. economic
187 Since it emerged in the 1980s as an extension of Section 301, "Special 30 1" has been mainly employed against Asian nations, which have been targeted by U.S. policy-makers for having "weak" IPR laws and enforcement. Few Asian countries have, at one time or the other. not found themselves on the "Special 301" lists for not fully protecting patented drugs, copyrighted software, films, video cassettes and sound recordings, and fashion trademarks. In more recent years, U.S. diplomacy has shifted its focus from stronger IPR laws to stronger enforcement in some Asian countries.
188 Office of the United States Trade Representative, "Annual Super 301 Review," Press Release, October 1, 1997 (Washington, DC: USTR).
189 It has linked a developing economy's record on intellectual property protection to eligibility for U.S. tariff benefits under the GSP. Abha Shankar, "A Carrot-and-Stick Approach," Financial Express, October 30, 1996.
190 Japan, for example, introduced product patenting only in 1978.
191 USIA Wireless File, June 15, 1995.
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diplomacy, however, has not been equally successful in the cases of
China and India.
Large developing economies contended during the TRIPS-related
negotiations that the benefits of creativity should be shared and further
impediments to the diffusion of technology should not be imposed
through a trade regime. Since a higher level of intellectual-property
protection entailed a higher price for products incorporating the latest
technologies, Western-style IPR regulations, these economies contended,
would impact adversely on Third World consumers and increase Third
World dependence on imports.
U.S. officials, in contrast, have argued that strong IPR laws and
enforcement offer attractive benefits for developing economies by
stimulating creativity, encouraging national inventive activity and
trans border transfer of technology, improving the credibility of exports,
protecting local artistic and cultural works, and encouraging new
products, processes and services for in-country markets. 192 However,
the conventional wisdom that strong intellectual-property protection is
good for developing economies 193 is now increasingly being challenged
by theoretical and empirical work in economics. Theoretical and
empirical research shows that, "actually, strengthened IPRlaws brought
very different results in the Japanese and Korean pharmaceutical
industries." 194 For example, product patenting of pharmaceuticals will
inevitably "produce higher prices and a flow of royalty payments to
foreign licensers," making higher drug prices "a staple of populist
political campaigns in many countries (in particular India and
192 United States Information Agency, Protecting Intellectual Property, FactSheet (Washington, DC: United States Information Agency, 1995).
193 See, for example, Jonathan Zavin and Scott M. Martin, 'The Value of Intellectual Property Rights Enforcement in Developing Countries," Economic News (August-September 1997), pp. 8-10.
194 La Croix, "Impact of Rise of Global Intellectual Property Rights on Asia," op. cit.
275
Thailand)." 195
Before the sweeping changes unveiled by TRIPS, four conventions
defmed international IPR standards: The 1883 Paris Convention covered
inventions, trade names, trademarks, service marks, industrial designs,
indications of source, and appellations of origin; the 1886 Berne
Convention covered copyrights; the 1961 Rome Convention dealt with
sound recordings; and the 1989 Washington Convention sought to
protect layout designs of integrated circuits. During the Uruguay
Round negotiations, many developing nations sought to exclude IPR
issues, 196 saying they should be addressed in the UN-affiliated World
Intellectual Property Organization (WIPO) that administers, among other
agreements, the Paris and Berne conventions. The United States,
however, contended that WIPO lacked teeth to enforce standards and
that the conventions in any case set only minimum standards for
protection. 197
TRIPS will compel countries to bring their IPR laws close to U.S.
standards. Countries will now be bound by the dispute-resolution
procedures of the new wro after the five-year moratorium on using this
process to resolve IPR disputes expires in the year 2000. 198 More
importantly, TRIPS requires countries to accord the same treatment to
foreign intellectual property as accorded to their own; provide protection
for, among other things, plant varieties, computer programmes and
195 Ibid.
196 U.S. diplomacy had succeeded in including trade-related IPR in the 1986 Ministerial Declaration launching the Uruguay Round MTN.
197 See Derian, America's Struggle for Leadership in Technology, op. cit.
198 Despite the moratorium. the United States hauled India before the WfO for not implementing the TRIPS obligation to set up a "mailbox" system to enable companies to file patent applications for pharmaceutical or agricultural chemical products and receive -- in special circumstances -- exclusive marketing rights for such products. The wro dispute-settlement panel that considered this case ruled in America's favour in September 1997. India went in appeal to the WfO Appellate Body. which upheld the panel's ruling. See Office of the United States Trade Representative. "USTRAnnounces Favourable Decision for U.S. in WfO Dispute With India." December 23. 1997 (Washington. DC: USTR).
276
databases and make no exclusion (such as pharmaceuticals) from their
protection obligations; and extend protection to pharmaceuticals "in the
pipeline" -- products that may have received approval before TRIPS
came into force but which have not been marketed. Developing
countries have been given time until 2000 and the least developed
countries until 2005 to comply with TRIPS, while the obligations of the
industrial economies came into force with effect from Janua.Iy 1,
1997. 199
TRIPS, however, does not resolve all IPR disputes. The
enforcement of its provisions in the face of political resistance by some
countries is likely to prove problematic. TRIPS, like the other URAs, can
be fully successful only if state-parties willingly comply with its
provisions and honour the rulings of the wro dispute-settlement
panels. Moreover, disputes over the United States' own full compliance
with TRIPS are likely to arise. These include its enforcement provisions
(Section 526 of the 1930 Tariff Act) that infringe the TRIPS-mandated
national treatment of foreign intellectual property, its excessively
restrictive requirements to copyright databases, and its retention of the
"first-to-invent" rule when virtually all other countries have a "first-to
file" rule for resolving patent disputes. 200
m. Investment
The URA on Trade-Related Investment Measures (TRIMs). by
bringing in the issue of national treatment for foreign investors and
imposing important constraints on host countries, encroaches on the
domain of domestic policy, spurring intense controversy over its
provisions in the developing world. The agreement, an important
success for U.S. economic diplomacy, has sought to identify and
prohibit trade-restrictive TRIMs by bringing investment measures under
199 See GAIT, Results of the Uruguay Round of Multilateral Trade Negotiations: Legal Texts, op. cit.
200 La Croix, "Impact of Rise of Global Intellectual Property Rights on Asia," op. cit.
277
the GAIT's provisions relating to national treatment and elimination of
quantitative restrictions. Like TRIPS, TRIMs is subject to the WfO
dispute-settlement process and provides different implementation
deadlines for the developed, developing and least developed countries. 201
TRIMs, however, comes with a permanent machinery-- a Committee on
Trade-Related Investment Measures -- to monitor its implementation. 202
U.S. insistence brought the examination of "the GATI rules
related to trade restricting and distorting effects of investment
measures" within the 1986 Uruguay Round negotiating mandate. 203
This marked the introduction of a major new item on the multilateral
trade agenda. In the period since after World War II. bilateral
investment treaties "have been the main method of protecting foreign
investment. "204 The OECD "Codes of Liberalization" and the looming
OECD multilateral investment agreement can apply only to the OECD
member-states.
The U.S. strategy at the TRIMs negotiations was aimed at
establishing clear global legal standards on expropriation, such as
nationalization, and dispute settlement and dismantling "unreasonable"
barriers to the setting up of foreign enterprises in developing economies.
The accord on TRIMs did not accomplish all the goals of U.S. foreign
economic policy, but by helping to establish a framework agreement for
negotiating the future elimination of further trade-distorting barriers to
foreign direct investment, American diplomacy brought investment for
the first time into the realm of trade. TRIMs represents "a considerable
201 See GATT, Results of the Uruguay Round of Multilateral Trade Negotiations: Legal Texts, op. cit.
202 Dubey, Unequal Treaty: World Trading Order After GAIT, op. cit., pp. 70-71.
203 See Jagdish Bhagwati, The World Trading System at Risk (Princeton, NJ: Princeton University Press, 1991).
204 Arlene Wilson and George Holliday, The World Trade Organization and the Singapore Ministerial CRS 'Report for Congress, October 29, 1996 (Washington, DC: Congressional Research Service), p. 8.
278
widening of the scope of international jurisdiction over domestic
policies. "205 TRIMs provides for the wro to consider negotiating by the
year 2000 specific provisions on investment and competition policy. 206
Five investment measures have been prohibited in the TRIMs
accord. The prohibitions apply to national requirements that foreign
investors, such as multinational corporations (MNCs), use local
products, commit themselves to export their products as a condition for
being permitted to import inputs, balance their "access to foreign
exchange (for imports) to an amount related to the foreign-exchange
inflows" through exports, and not to export more than a specified
"volume or value of its local production."207 However, while granting
expanded transnational rights to MNCs and other foreign investors,
TRIMs does not seek to deal with their restrictive business practices
(REPs), such as price fixing or predatory pricing, collusive tendering and
market manipulation.
U.S. economic diplomacy has already started targeting trade
practices overseas that it claims are inconsistent with the rules of
TRIMs and limit or hinder American exports. One key international
industry where it has introduced close TRIMs monitoring is autos and
auto parts. It is targeting trade practices in this sector in Japan, South
Korea, China, Argentina and even India, where it contends "import
licensing, domestic content and export performance requirements affect
market access. "208
IV. Textiles
The URA on textiles will replace the extra-GATT regime, the Multi-
205 Dubey, Unequal Treaty: World Trading Order After GAIT, op. cit., p. 72.
206 Wilson and Holliday, World Trade Organization and Singapore Ministerial, op. cit., p. 8.
207 GATI, Results of the Uruguay Round of Multilateral Trade Negotiations: Legal Texts, op. cit.
208 Office of the United States Trade Representative, Clinton Administration Trade Priorities (Washington, DC: USTR, October 1996).
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Fibre Arrangement (MFA). under which global trade has been conducted
since the 1970s. The MFA's Iigid quota bariiers to Third World textile
exports have been a continuation of the quota regime of the 1961 Short
Term Arrangement (STA) and the 1964 Long-Term Arrangement (LTA). 209
Even though developing countiies have always had a major commercial
stake in textile trade, 210 the developed world kept textiles out of the
GATI agenda from the beginning to protect their domestic industiies.
Under the Uruguay Round accord, the MFA will be phased over
a 10-year peiiod by cutting taiiffs and abolishing quotas. However,
much of the action will occur in the final two years of the peiiod. The
advanced industiial states led by the United States successfully
thwarted Third World efforts to achieve an immediate quota-free world
textile regime.
More importantly, even after the URA is fully phased in, the
United States will continue to maintain among the highest taiiffs on
textiles in the developed world. 211 That was an important
accomplishment by U.S. diplomacy in the Uruguay Round MTN. In
contrast to the rear-loaded obligations that the United States and other
developed countiies assumed under the URA on textiles, the
liberalization commitments of the developing countiies came into effect
immediately.212 However, India, one of the largest exporters of textiles,
and some other developing countiies cited balance-of-payment problems
to defer full implementation of their liberalization obligations. The
textile agreement was quite inimical to India's commercial interests as
209 John Greenwald and Scott Hoing, 'The United States and the MFA IV: Opportunities Lost," Law and Policy in International Business. Vol. 19, No. 1 (1987). pp. 171-201.
210 The global trade in textiles has surpassed $250 billion a year.
211 Wieczorek, Uruguay Round and Next Agenda for Global Trade, op. cit., p. 6.
212 See Dubey, Unequal Treaty: World Trading Order After GAIT. op. cit., pp. 81-85.
280
the curbs on its exports will remain in force until virtually the very end
of the 1 0-year implementation period.
V. Agriculture
The Uruguay Round Agreement on Textiles and Clothing largely
mirrored the developed world's trade priorities and concerns in the
Uruguay Round despite the modest concessions handed to the
developing countries in the farm sector. The negotiations on agriculture
were a real tug-of-war between the United States and EU. 213 The final
outcome was a victory for both: 'The EU will still be able to spend over
$10 billion a year in export subsidies, while the United States will spend
approximately $500 million a year."214 America will also gain improved
access to the European, Japanese and Third World markets for its farm
produce.
Numerous efforts before the Uruguay Round to liberalize
international farm trade under the GATT system had failed. The
Kennedy Round yielded nothing, while all the United States got from the
Kennedy Round in the 1970s was a useless "Subsidies Code". The
backdrop to the start of the Uruguay Round was the sharp decline of
U.S. farm exports, which plummetted by 40% between 1981-86. This
fall came after the unparalleled U.S. farm-export boom of the 1970s,
when America "multiplied its net farm-trade surplus from less than $2
billion in 1971 to more than $25 billion by the end of the decade."215
After the Uruguay Round began, U.S. foreign economic policy came
round to the firm view that commercial benefits for American
213 T.K. Warley. "Europe's Agricultural Policy in Transition," International Journal Vol. 47 (Winter 1991-92), pp. 112-35.
214 Wieczorek, Uruguay Round and Next Agenda for Global Trade, op. cit .. p. 5.
215 Robert L. Paarlberg. "U.S. Interests in International Agricultural Policy," in John Yochelson (ed.), Keeping Pace: U.S. Policies and Global Economic Change (Cambridge, MA: Ballinger, 1988), p. 239.
281
agrtculture would be large if other nations could be persuaded to
liberalize along with the United States.
In the end, the URA on agriculture that emerged was far less
liberal than had been originally conceived. The accord requires non
tariff barriers to be converted to monetary tariffs and all subsidized
exports, measured against the base period of 1991-92, to be cut by 20%
in developed countries and 13% in the developing world. 216 'The advent
of tariffs on imports in place ofnon-tariffbarriers will provide additional
protection from import surges that could depress markets."217 The new
tariffs will be gradually reduced over one decade by 36% in developed
countries and 24% in the Third World.
The URA's attempt to begin the process of farm globalization
carries important implications in terms of food-security and price
maintenance strategies and crop and consumption patterns for the
developing countries. 218 The ancillary accord on sanitary and
phytosanitary (SPS) measures lays down farm-export conditions that are
probably tough for developing nations. Third World nations heavily
dependent on food imports can be "expected to be negatively affected
from the higher prices and more competition in their traditional
markets."219
216 GATT. Results ojthe Uruguay Round of Multilateral Trade Negotiations:
Legal Texts, op. cit.
217 Wieczorek, Uruguay Round and Next Agenda for Global Trade, op. cit., p. 6.
218 See Charles E. Hanrahan, Agriculture in the WTO Ministerial Conference, CRS Report for Congress, No. 96-779 ENR, September 19, 1996 (Washington, DC: Congressional Research Service).
219 Wieczorek, Uruguay Round and Next Agendafor Global Trade, op. cit., p. 6.
282
WTO
The World Trade Organization (Wf0},220 as GATT's successor, 221 came
into being as of January 1, 1995 and held its first Ministerial
Conference in December 1996 in Singapore.222 The emergence of the
wro marks a watershed in international trade history at a time when
the world economy is becoming increasingly globalized. The shift from
GATT to WfO aims to build -- at least conceptually -- a strengthened
role for the multilateral process despite the rising, U.S.-encouraged
trade regionalism. The WfO's main functions are to administer and
enforce the URAs, serve as a forum for new trade negotiations and
agreements, monitor national-trade policies and resolve trade-related
disputes.
For U.S. foreign economic policy, a strong, vibrant, discipline
enforcing WfO is critical to its long-term interests. Through the
enforcement of the URAs and negotiation of fresh accords, the wro can
substantially improve America's market access abroad. However, the
wro can succeed only if the rest of the world sees the United States
playing by its rules. This "will prove delicate because of its pursuit of
regional trade agreements and continuing trade problems with
220 Headquartered in Geneva, the WfO has a staff of about 500 and an annual budget of about $90 million, of which nearly $16 million came from the United States in 1997. Renata Ruggiero of Italy was elected WfO DirectorGeneral in 1995.
221 The GAIT was a set of rules without an institutional foundation. The creation of the wro as a formal trade institution fulfills the origin design of the Bretton Woods planners for a third pillar to the IMF and World Bank. Their original design had been undercut by the stillborn International Trade Organization (ITO).
222 The Ministerial Conference, the organization's highest authority, is to meet every two years. The WfO's daily work is carried out by several subsidiary bodies, principally the General Council, composed of WfO members. The General Council delegates specific responsibility to the Council for Trade in Goods, Council for Trade in Services and Council for TradeRelated Aspects of Intellectual Property.
283
Japan."223 In his first annual report, the WfO Director-General stated
that the record of compliance with the URAs had been mixed, with most
member-states fulfilling their initial obligations under some accords,
including the Agreement on Textiles and Clothing, but not under others,
particularly GATS and the Agreement on Subsidies and Countervailing
Measures. 224 Washington is working diplomatically to ensure better
compliance with the URAs by various states.
U.S. diplomacy is particularly interested in pushing the WfO's so
called "built-in agenda"-- the commitments for future negotiations and
work programmes enshrined in the URAs. 225 The WfO's "built-in
agenda" envisions further negotiations to reform agriculture and
subsidies, liberalize trade in services and investment, and increase
transparency in govemment -procurement practices. Increasing market
access through the wro and other trade agreements "is the leading
priority" of the United States.226 As a U.S. government report states,
As a result of the Uruguay Round, the United States has a broad agenda in the wro to pursue further negotiations and strengthen existing agreements. Among others. wro negotiations are scheduled to open further the $600-billion global agricultural market beginning in 1999; to further open the $1.2-trillion global services market; and to review the Agreement on TRIPS which protects a variety of U.S. intellectual property right holders, including U.S. copyright holders whose foreign sales and exports exceed $53 billion a year. Also included is the two-pronged agenda to negotiate improvements to the current reciprocal Agreement on Government Procurement and to conclude
223 Morici, "Export Our Way to Prosperity," op. cit., p. 12.
224 World Trade Organization, Overview of Developments in International Trade and the Trading System, Report WT /TPR/OV1 (Geneva: WTO, December 1. 1995).
225 See World Trade Organization Secretariat. Report on U.S. Trade Policy (Geneva: WTO, November 12, 1996).
226 Ambassador Charlene Barshefsky. Acting United States Trade Representative, Statement before the Subcommittee on Trade of the House Committee on Ways and Means. September 11, 1996 (Washington, DC: USTR).
I
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an agreement obligating all wro members to maintain transparent procurement practices, thereby enabling U.S. companies to compete in the trillion-dollar global government procurement market. 227
The United States is also seeking to use the accession of new
members to the wro to its advantage by inducing the candidates to
open their markets to American goods and services as a condition for
extending its support. As a White House report states, "Accessions offer
an opportunity to help ground new economies in the rules-based
trading system. This is why we will take an active role in the accession
process dealing with the 28 applicants currently seeking wro membership."228 The United States has insisted that the new applicants
substantially reform not only their foreign-trade regimes but also make
their "domestic economic institutions compatible with wro rules. "229
It has opposed the long transition periods sought by some applicants to
make the necessary changes. Without opening its protected market
more broadly, China is unlikely to gain U.S. support for its entry into
the Wf0. 230 Russian's accession to the \VTO will underpin its
integration into the U.S.-led global economy.
The WfO's dispute-settlement provisions231 have come very handy
227 USTR, Identification of Trade Expansion Priorities, op. cit.
228 White House. Strategy for a New Century, op. cit., pp. 15-16.
229 Wilson and Holliday, World Trade Organization and Singapore Ministerial, op. cit.. p. 4.
230 Omestad, "Jiang, Clinton and Abe Lincoln," op. cit., pp. 66-67.
231 Dispute resolution is the most vital component of the wro. The WfO General Council is also the Dispute-Settlement Body (DSB). which has been commissioned to establish panels. adopt panel and appellate reports, monitor implementation of fmdings by concerned member-states, and recommend possible retaliation for non-compliance. The flrst stage of the disputesettlement process requires parties locked in a dispute to engage in mutual consultations. lfthey fail to resolve their differences, both parties can seek the intervention of the WfO Director-General. However, in the absence of a settlement through consultations, the complainant after 60 years can approach the DSB to appoint a panel to hear the case. The establishment of a three-member panel is automatic the second time it is requested unless there is a consensus against the decision. The panel's fmdings are normally
285
to the United States, which has been the initiator of two-thirds of all
cases that have come before the organization. 232 It has won several
important cases, including the very first one it took to the wro.
involving Japan's taxes on imported liquor. 233 It also won the first
TRIPS-related case, which was against India. However, the very first
ruling delivered under the wro·s dispute-resolution process, which
Director-General Ruggiero has hailed as the "major success story" of.the
multilateral system,234 went against the United States, with the panel
upholding the complaints of Venezuela and Brazil that U.S.
environmental standards discriminate against imports of petrol. 235
wro·s 1997 rejection of the u.s. complaint against Japan in the
famous Kodak-Fuji feud over photographic film and paper has
underlined the limitation of America's success in employing the new
multilateral dispute-settlement procedures to its advantage.
Nonetheless, U.S. economic diplomacy can be expected to aggressively
use the wro process, in tandem with "aggressive unilateralism," to
relayed to the parties to the dispute within six months and circulated to the other wro members three weeks thereafter. Panel reports are adopted within 60 days of issuance unless one party appeals. The appeal is heard by a standing seven-member Appellate Body constituted by the DSB. The appeal proceedings are not to exceed 60 days but in no case shall they exceed 90 days. Thirty days after the ruling, the DSB adopts the Appellate Body report, which is unconditionally accepted by the disputants unless there is a consensus against its adoption. The wro voting procedures ensure that those who are guilty of violating multilateral rules are unable to block adoption of panel and appellate reports.
232 For details of the cases brought by the United States before the WfO, see Office of the United States Trade Representative, "Monitoring and Enforcing Trade Laws and Agreements," Fact-Sheet, September 30, 1997 (Washington, DC: USTR).
233 USTR, Clinton Administration Trade Priorities, op. cit.
234 World Trade Organization, "Director-General's Speech to EU Trade Ministers in Dublin," Press Release No. 56, September 24, 1996 (Geneva: wro).
235 An American appeal of the ruling was rejected by the WfO Appellate Body, forcing Washington to start implementing the decision.
286
dismantle perceived foreign-trade barriers. The United States, which
was originally apprehensive that a strong wro dispute-settlement
process would undermine its national trade laws and ability to enforce
unilateral sanctions, has discovered that as the world's sole
superpower, it can have its cake and eat it too: Use the wro process
and use unilateral sanctions.
A. New trio of accords
The WfO's most impressive attainment has been to conclude
negotiations on a trio of international accords under GATS. These
agreements on information technology, basic telecommunications and
financial services came about because of the assertive role played by the
United States in and outside the negotiations. U.S. diplomacy worked
hard in important capitals to rally support in favour of each of the
accords: The Information Technology Accord (ITA), finalized in early
1997 after it won support at the December 1996 WfO Ministerial
Conference, 236 the 1997 Agreement on Basic Telecommunications, and
the Agreement on Financial Services, reached in late 1997.
The ITA and the agreements on basic telecommunications and
financial services are a major triumph for American economic diplomacy
as they cover sectors where the United States is the most competitive
producer and service provider in the world. According to a joint
statement by two senior Clinton administration officials, the three
complete "the triple play of solid global market-opening agreements" for
the United States under the Wf0. 237 The three unlock tens of billions
of dollars worth of commercial opportunities for American firms in the
236 Jeanne S. Holden, "U.S. Tries to Propel Telecom Talks, ITA Accord at WTO Ministerial," USIA Wireless File, December 9. 1996, pp. 27-28.
237 U.S. Treasury Secretary Robert Rubin and U.S. Trade Representative Charlene Barshefsky. Joint Statement on the Successful Conclusion of the WTO Financial Services Negotiations (Washington. DC: USTR. December 13, 1997).
287
so-called Big Emerging Markets (BEMs) of the world.
WfO negotiations on another GATS sector, maritime-transport
services, however, have been suspended until the year 2000 after they
ran aground in 1996. At that time, "the United States announced it
would not present an offer because market -opening offers of other
countries were inadequate." Maritime-transport services include global
shipping, auxiliary services, and access to and use of port facilities
other than cabotage services. 238
The ITA, a major trade-liberalizing measure which will reduce
tariffs to zero, will significant boost U.S. exports of information
technology (IT) by breaking down tariff and non-tariff barriers in the
important overseas markets. 239 The worldwide revenues of U.S. IT
firms, which totalled $381 billion in 1995 in a $500-billion global
market, 240 are expected to soar in the coming years. The ITA thus
represents a major success for U.S. diplomacy. It also advances the
U.S. proposal for a Global Information Infrastructure (Gil) modelled on
America's National Information Infrastructure (NII). 241
The Agreement on Basic Telecommunication, effective February
5, 1998, marks "a dramatic opening of global markets in this $675-
billion industry" in which the United States has a distinct competitive
238 Wilson and Holliday, World Trade Organization and Singapore MinisteriaL op. cit., p. 6.
239 Glennon J. Harrison, The Information Technology Agreement, CRS Report for Congress, December 20, 1996 (Washington, DC: Congressional Research Service), pp. 1-6.
240 Information Technology Industry Council (ITIC). ITA is a Win-Win Agreement (Washington, DC: me, September 30, 1996).
241 See Glenn J. McLoughlin and Marcia S. Smith, The Global Information Infrastructure (Gin and the G-7 Meeting in Brussels: Issues for Congress, CRS Report for Congress, April 26, 1995 (Washington, DC: Congressional Research Service).
[ __
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edge. 242 U.S. companies will now have relatively open access to foreign
markets that make up more than 95% of global telecommunications
revenue. The world telecommunications market is projected to grow by
as much as 300% over the next decade. The agreement allows U.S.
telecmn firms to hold a large stake in national telecommunications
companies in the world and provide local, long-distance and
international services to overseas customers. At least 65 countrtes have
also adopted regulatory prtnciples modelled on the 1996 U.S.
Telecommunications Act. 243
The Agreement on Financial Services, involving the participation
by 102 WfO members, was reached in December 1997 with
commitments to liberalize banking, securtties and insurance markets. 244
This agreement, to come into force on January 29, 1999, was a follow
up to the 1995 negotiations durtng which only 44 foreign offers were
placed on the table, with the United States calling them insufficient and
threatening to take an MFN exemption on its own liberalization offer.
Under the 1997 agreement, 52 countrtes guaranteed broad market
access in all insurance spheres encompassing life, non-life, reinsurance,
brokerage and auxiliary services. Another 14 countrtes committed
themselves to opening selected insurance subsectors of high interest to
242 Office of the United States Trade Representative, "USTR Statement on Telecom Agreement Extension," December 19, 1997 (Washington. DC: USTR).
243 USTR Identification of Trade Expansion Priorities. op. cit.
244 Seventy of the countries made improved offers in the final round of the negotiations. But some countries, including India, only committed themselves to the "right of establishment" for banks and securities. India. Costa Rica. El Salvador and Kuwait made no offers on insurance market access. Office of the United States Trade Representative, Country Commitments in Financial Services Accord (Washington, DC: USTR December 15, 1997).
In the period before the agreement on financial services goes into effect. U.S. diplomacy will seek to persuade India, Brazil, South Korea and Malaysia to go further in opening their markets to foreign providers. According to a senior American official, "these countries are important to U.S. industry." Deputy U.S. Trade Representative Jeffrey Lang, Speech to the Coalition of Service Industries (CSI). January 13. 1998 (Washington. DC: CSI).
289
U.S. companies. In the banking sector, 59 nations will allow 100%
foreign ownership of subsidiaries or branches. In securities, 44
countries will permit 100% foreign ownership of subsidiaries. In
monetary terms, the commitments involve staggering amounts: $17.8
trillion in global securities assets; $38 trillion in global (domestic) bank
lending; and $22.2 trillion in worldwide insurance premiums.245
B. Labour and environmental standards
The introduction of labour and environmental issues in the WTO
agenda has spurred intense controversy, with the developing countries
regarding themselves as the likely victims of the new standards that
have been proposed by the "Quad" states -- the United States, European
Union, Japan and Canada. The raising of trade-related labour
standards by the United States at the WTO's first Ministeiial Conference
in Singapore generated immense passions. Andrew Stoler, a senior U.S.
trade official, demanded at the conference the setting up of a WTO
working group to examine the relationship between trade and labour
standards to ensure a global minimum wage. 246 The U.S. position was
endorsed by the other Quad states but vociferously opposed by the G-
15 group of developing countries and the ASEAN states which insisted
that the International Labour Organization, 247 not WTO, was the
appropriate forum for discussing labour-rights issues.
The Quad states have argued for a linkage between trade and
"core labour standards," which they interpret as involving the freedom
of association and collective bargaini11g, the prohibition of bonded
245 Secretary Rubin and Trade Representative Barshefsky, Joint Statement on Successful Conclusion of WfO Financial Services Negotiations, op. cit.
246 "USTR's Stoler on Trade and Labour Standards," USIA Wireless File, December 9. 1996, pp. 23-24.
247 The International Labour Organization (ILO) is the world's oldest international organization and the only institution to survive from the League of Nations.
I
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labour and child labour, and non-discrimination in employment. 248 The
United States has already enacted a new law -- an amendment to
Section 307 of the 1930 Trade Act -- that empowers its customs
authorities to block the importation into the United States of any goods
manufactured by "forced or indentured child labour. "249 The United
States and EU have threatened to ban hand-knotted carpets from India,
Nepal and Pakistan.
The absence of a trade-labour linkage, the Quad states contend,
"results in an 'unfair' competitive advantage and is a violation of human
rights."250 Developing countries, however, deny that they have any
"unfair" competitive trade advantage and see the U.S.-backed move as
a subtle effort to undercut their low-wage benefits in certain sectors and
to raise protectionist barriers. These states are also concerned that
such a linkage at the wro might lead to international meddling in their
domestic economic affairs.
The United States has now brought the subject of core labour
standards on the agenda of the ILO, successfully persuading the
organization's governing body in November 1997 to begin the process
of issuing a declaration on such standards. 251 The IW Declaration on
Fundamental Labour Standards, to be drafted in cooperation with the
organization's tripartite constituency of governments, labour unions and
employers, would seek to ban forced and child labour and protect basic
labour rights such as the freedom of association and collective
bargaining. ILO Director-General Michel Hansenne has urged that the
248 "U.S. Labour Official on ILO and Core Labour Standards," USIA Wireless File. November 23, 1997, pp. 53-55.
249 Jon Schaffer, "U.S. to Consider Ban of Hand-Knotted Carpets from South Asia," USIA Wireless File, November 5, 1997, pp. 39-40.
250 Wilson and Holliday, World Trade Organization and Singapore Ministerial, op. cit., p. 9.
251 Wendy Lubetkin, "Next ILO Conference to Consider Labour Standards Declaration," USIA Wireless File, November 23, 1997, pp. 55-56.
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declaration be internationally binding and that his organization be given
"new teeth" to enforce such a declaration. 252
The new link sought to be established between environmental
standards and trade has also caused concern to developing economies,
which see such a move as fraught with the risk of impeding "their
exports of tropical products such as timber or compromising their
comparative advantage in certain industries. "253 The trend towards the
creation of trade-related environmental standards and the promotion of
sustainable development has been underscored by the preamble to the
Uruguay Round Final Act establishing the WfO. Trade-related
environmental issues at the wro are likely to remain very contentious.
This has been underlined by the sharp North-South differences
in the discussions at the WfO Committee on Trade and the
Environment, which has been considering unilateral trade restrictions
to enforce multilateral environmental agreements (MEAs) and
"ecolabelling," or providing environmental information on product labels.
At issue is whether such practices are consistent with the wro rules or
are actually disguised barriers to trade. 254 While developing nations are
"strongly interested in protecting their environment and promoting
sustainable development, they view the policies being promoted by the
United States and other developed countries as having the potential for
backdoor protectionism, such as restricting imports based on
environmental or health considerations. "255
C. WTO and regionalism
252 Ibid.
253 Cronin and Gallis. GATT Accord: Implications for U.S. Foreign Policy. op. cit., p. 7.
254 Wilson and Holliday, World Trade Organization and Singapore MiniSterial, op. cit., p. 6.
255 Cronin and Gallis, GATT Accord: Implications for U.S. Foreign Policy, op. cit.. p. 7.
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Despite the U.S.-led strengthening of the multilateral trade
process through the establishment of the wro. tension between
regionalism and multilateralism has grown with the emergence of a de
facto "tri-polar" economic world dominated by rigid trading blocs in the
Americas, Europe and East Asia. Global interest in regional trading
arrangements has grown dramatically since the 1980s when the United
States reversed its traditional trade policy and negotiated free-trade
agreements with Israel and Canada. 256 By 1996, the WfO had been
notified by its member-states about the conclusion of open-trade
agreements and customs unions, a significant number of them
established in recent years alone. The United States, which has been
engaged in a growing number of regional initiatives, will continue to
aggressively seek new regional trading opportunities. 257 It is already the
leader of three operational or evolving "superblocs" -- NAFrA, APEC and
FTAA. The increasing tide of preferential trading arrangements is
bound to have a profound impact on the multilateral system at large.
U.S. economic diplomacy now is often called upon to address the
question whether the surging regionalism -- reinforced by the desire of
some countries at the periphery to join such trading arrangements258 -
poses a threat to multilateralism. Despite the spirited defence by U.S.
diplomacy of the growing prominence of regional trading arrangements,
the question does remain: "Is freer trade among regional partners
consistent with the goal of free trade among all nations?"259 The future
of the international trading system, which the United States helped
fashion and lead since 194 7, hinges on the establishment of a
256 See Schott, Free Trade Areas and U.S. Trade Policy, op. cit.
257 See White House. Recommendations on Future Free Trade Area Negotiations, op. cit.
258 India, for example. has desired to join APEC and even ASEAN.
259 Berta Gomez. "Regional Trade: A Help or Hindrance to Global Liberalization?", Economic Perspectives. Vol. 1, No. 16 (November 1996).
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harmonious relationship between multilateralism and regionalism.
Disharmony would certainly undermine the WfO's effectiveness and
bring its future under a cloud.
The establishment of the wro can in some ways have a
disciplining effect on the potential threats emanating from the
competing trading blocs in the world. The strengthened multilateral
guidelines and the strong dispute-settlement procedures of the wro can help contain trade wars. 260 Nonetheless, the emergence of the wro has not reduced tension between regionalism and multilateralism.
According to U.S. Under Secretary of Commerce Stuart Eizenstat,
"There is always going to be a certain tension between multilateralism
and regionalism."261
The WfO, like the GATT, permits member-states to enter into
FTAs or customs unions under specific conditions so that there is trade
creation, trade diversion. In practice, however, Article XXIV of the
GATT/WTO, which allows an exception to the MFN principle for such
a preferential-trade arrangement. has been employed indulgently and
no preferential-trade agreement has ever been rejected at the
multilateral level. One outcome of the Uruguay Round was the setting
up of the Committee on Trade Regional Agreements (CRrA) under the
WTO to examine issues relating to the potential impact of such accords
on multilateralism. The CRfA's role is largely procedural, although its
examination of the systemic implications of preferential trading
arrangements can help focus attention on the areas of concern for
multilateralism. The CRfA is also studying elements in regional
arrangements that could impinge on WTO rules, including technical
trade barriers, S&P regulations and rules of origin.
As WTO Director-General Renato Ruggiero has cautioned, the
260 Wieczorek, Uruguay Round and Next Agendajor Global Trade, op. cit., p. 5.
261 "Interview: Eizenstat on Multilateral, Regional Trade," op. cit.
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proliferation of preferential-trade groupings through an exception to the
MFN principle could "result in the exception becoming the rule, thus
risking a complete change in the nature of the system. "262 Preferential
trading areas can divert energies from the effor. to evolve a more free
and fair multilateral system. 263 In the absence of strong multilateral
jurisdiction and discipline over preferential arrangements, the
temptation to discriminate against third countries will be strong.
Regional agreements should constitute trade-enhancing, not trade
contracting, measures that serve as the building blocks of global trade,
not its stumbling blocks. Without full compatibility, regionalism can
seriously undermine multilateralism. 264
The United States insistence on riding different horses is evident
from its concurrent pursuit of multilateralism, regionalism, bilateralism
and regionalism. Nevertheless, U.S. diplomacy will seek to manage
tension between regionalism and multilateralism in a way that it does
not retard the wro process, which remains vital to the expansion of
American commercial openings across the globe. That is the reason
why under U.S. leadership, APEC, FTAA and NAFTA have been
portraying themselves as the "leading edge of liberalization" working in
consonance with \VfO rules and seeking to bolster multilateral free
trade. U.S. diplomacy will continue to argue that regionalism
complements -- not competes with -- multilateralism.
The WfO faces some important challenges. It can be effective
only if it enforces the various multilateral agreements and ensures its
member-states fully honour the rulings of its dispute-settlement panels.
Some of the URAs, like TRIPS and TRIMs, are proving politically difficult
in several states. Due to the "end-loading" of the developed countries'
262 Ruggiero, "Multilateralism and Regionalism," op. cit.
263 Hormats, "Making Regionalism Safe," op. cit.. p. 104.
264 Low, Trading Free: GATT and U.S. Trade Policy, op. cit., p. 31.
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obligations in the textiles accord, major exporters in the developing
world are being required to fulfill their part of the bargain now but wait
until the very end of the 1 0-year implementation period to know
whether the advanced economies faithfully implement their
commitments. 265 The WfO, however, will continue to be supported by
U.S. economic diplomacy, which will employ its various instruments to
enforce compliance by other states. But U.S.-sponsored efforts to
advance the WfO's built-in agenda may not proceed smoothly,
particularly on further negotiations on agriculture and investment. 266
According to WfO Director-General Renato Ruggiero, "Ensuring that
regionalism and multilateralism grow together -- and not apart is
perhaps the most urgent issue facing trade policy-makers today."267
265 WI'O, Overview of Developments in International Trade and the Trading System, op. cit., p. 5.
266 The United States is eager to achieve a WfO investment agreement modelled on a similar OECD accord. International flows of foreign direct investment (FDI) have been rising dramatically since the 1980s, totalling $315 billion in 1995.
267 Ruggiero, "Multilateralism and Regionalism in Trade," op. cit.