An APEC Trade Agenda?: The Political Economy of a Free Trade Area of the Asia-Pacific

3. The Political Economy of a Free Trade Area of the Asia-Pacific: A U.S. Perspective

A U.S. Perspective 37 3 The Political Economy of a Free Trade Area of the Asia-Pacific: A U.S. Perspective Vinod K. Aggarwal I. INTRODUCTION What are the prospects for a Free Trade Area of the Asia-Pacific (FTAAP)? This paper addresses this question from the perspective of the political economy of U.S. trade policy and the current role of the Asia Pacific Economic Cooperation Forum (APEC). To preview my argument, although such an agreement may well be beneficial from a narrowly economic standpoint, the reality of U.S. trade politics, of relations between Northeast Asian economies, and of APEC’s relative institutional weakness make it highly unlikely that an FTAAP will come to fruition in the short to medium term, regardless of whether the Doha Round of the World Trade Organization (WTO) is successful or not. Moreover, even the tactical use of an FTAAP to advance the WTO agenda is likely to backfire and simply further undermine prospects for successful completion of the Doha Round. Instead, I suggest that APEC should play an active role in monitoring the 03 FTAAP Ch 3 6/7/07, 10:12 AM 37 38 Vinod K. Aggarwal proliferation of bilateral trade agreements in the region and work to promote the multilateral trade agenda. To briefly elaborate, the logic of my argument runs as follows. With respect to the current U.S. political economy of trade, two developments are of particular significance. First, the U.S. strategy of “competitive liberalization” in which it pursues bilateral and minilateral agreements, both sectorally and broadly, with the intent of stimulating the multilateral path of the WTO has fractured the domestic coalition for free trade.1 Ironically, in their zeal to push forward the agenda of free trade — an agenda which I share — proponents of competitive liberalization have undermined the very movement to free trade that they so ardently advocate through a politically naïve understanding of trade politics. Creating piecemeal liberalization through open sectoral agreements such as the Information Technology Agreement (ITA) and bilateral trade agreements has undercut the coalition for free trade. By giving specific industries what they wanted, this policy has left protectionists in agriculture, steel, textiles, and others in control of the trade agenda. Thus, those who bemoan the proliferation of bilateral and regional initiatives and the lack of progress in the WTO fail to recognize the obvious unfortunate causality connecting these two approaches to trade. In my view, it is their very advocacy of a policy of competitive liberalization that has been a key contributor to the Doha Round’s troubles. Second, the continuing and increasing U.S. trade deficit with China has dramatically increased domestic protectionist pressure in the United States. Many industry groups and their political advocates have seized upon the gargantuan trade deficit, which has been blamed by many on the rigidity of the yuan’s exchange rate, to increasingly question the benefits of free trade for the U.S., particularly with countries specializing in lowcost exports. The threat of across-the-board tariffs of 27.5 per cent on all Chinese imports highlights the seriousness of this issue. Although such a tariff is unlikely to pass, it has served as a rallying cry for an assortment of protectionist groups in the United States and allied groups who have linked security concerns, labour rights, human rights, religious freedom, and numerous other issues to trade. Together with the fractured domestic coalition for free trade that has been created by competitive liberalization, any free trade area that involves China will effectively be dead on arrival in Congress for the foreseeable future. 03 FTAAP Ch 3 6/7/07, 10:12 AM 38 A U.S. Perspective 39 For its part, APEC has failed to significantly move forward the trade liberalization agenda in the Asia-Pacific and is unlikely to do so with its current weak institutional structure. It has, however, continued to play an important and useful role in trade facilitation activities and with respect to other issues such as security and the environment, to name just a few. Using APEC as the key instrument to promote an FTAAP in the current context will lack credibility and will instead further fracture APEC’s membership and undermine the useful roles it has been playing. How might the logic of this pessimistic view on the prospects for an FTAAP be affected by possible success or failure of the Doha...