Distinguished Speaker Seminar: Vinod K. Aggarwal - Look West: The Evolution of US Trade Policy Toward Asia in the Context of the Global Financial Crisis

Vinod K. Aggarwal, Professor in the Department of Political Science, Affiliated Professor in the Business and Public Policy group in the Haas School of Business, and Director of the Berkeley Asia Pacific Economic Cooperation (APEC) Study Center at the University of California at Berkeley, gave a lecture on “Look West: The Evolution of United States (US) Trade Policy Toward Asia” on 10 August 2009 at the ADBI in Tokyo.

Mr. Aggarwal's presentation on the evolution of the US trade policy was divided into three parts:

1. classification of different kinds of trade agreements that differed from the the World Trade Organization's (WTO) usage of the term “regionalism” for all types of preferential trade accords;
2. periodization of US trade policy from the early post-world war II era to the present; and
3. the current domestic political dynamics of US trade policy.

Mr. Aggarwal argued that traditional approaches of looking at free trade agreements (FTAs) missed the political and economic forces that drove them. His proposed nomenclature focused on five dimensions:

1. the number of participants involved in an agreement (unilateral, bilateral, minilateral, and multilateral);
2. product coverage (few or multi-products);
3. geographical scope (concentrated or dispersed);
4. market-opening or closing; and
5. institutionalization (binding or non-binding agreements).

Based in part on these five dimensions, he created twelve classifications of trade governance: (1) sectoral unilateralism; (2) sectoral bilateral regionalism; (3) sectoral bilateral transregionalism; (4) sectoral minilateral regionalism; (5) sectoral minilateral transregionalism; (6) sectoral multilateralism; (7) multi-product unilateralism; (8) multiproduct bilateral regionalism; (9) multi-product bilateral transregionalism; (10) multiproduct minilateral regionalism; (11) multiproduct minilateral interregionalism; and (12) multiproduct multilateralism. He noted that trade agreements evolve into other kinds of classification. For instance, what we now know as the European Union, which falls under category 10, had its start as the European Coal and Steel Community of 1951 under category 4.

Having sorted out possible conceptual confusion that may arise from the typical classification of FTAs and the use of the misleading term “regionalism”, Mr. Aggarwal proceeded with his four-phased evolution of the US trade policy. The first phase is from the post-World War II until the mid-1950s or ”multiproduct multilateralism”. This era saw the creation of the General Agreement on Tariffs and Trade (GATT) in 1948 that the US promoted as a substitute for International Trade Organization (ITO). Although the US was the dominant power after the Second World War, it was unable to reign in domestic coalitions that prevented the ratification of the proposed ITO. The GATT endured until 1994 and has proven successful in reducing trade barriers and ushering in high growth in international commerce. With respect to Asia, having just emerged from the post-war conflict and given the resulting animosities, Asian allies were unable to design their own regional institutions. In its effort to stabilize the region, the US pursued security through the 1951 San Francisco Peace Treaty and encouraged access to its market and later promoted the GATT as the key trade institution

The second phase or “liberal protectionism” from the mid-1950s to early-1980s was dominantly a GATT-based, multilateral, multi-product approach with some sectoral protectionist arrangements that met pressure from domestic lobbies. This approach allowed the Executive to strengthen the overall domestic coalition for free trade. US participation in the fourth round of the GATT talks under President John F. Kennedy led to a significant expansion in world trade made possible by buying off support of likely losers from free trade by the protection of the textile and apparel sectors through the Long Term Arrangement on Cotton Textiles (LTA), which had been preceded by American pressure to have Japan impose Voluntary Export Restraints. Yet, despite deviating from some GATT norms, the LTA was carefully nested in the GATT regime.

In the third phase from the 1980s to mid-1990s, US trade strategy moved away from pure multilateralism toward regionalism following the Tokyo Round of the GATT that sought to tackle non-tariff barriers to trade. After the failed 1982 GATT Ministerial Meeting, the US Trade and Tariff Act allowed active negotiations on bilateral FTAs, mainly on regional basis. The US concluded an FTA with Canada and co-founded APEC, both seen as building blocs for broader multilateral trade liberalization. Moreover, with the end of the cold war with the former Soviet Union, ideological support for continuing economic concessions in broad-based trade negotiations weakened.

The final phase or ”competitive liberalism” from mid-1990s to 2008 saw the conclusion of open sectoral multilateral agreements in information technology, telecommunications, and financial services from 1996 to 1998. The US continued this path of liberalization and proposed a set of nine sectors under the Early Voluntary Sectoral Liberalization (EVSL) initiative at the APEC Summit in 1997. Yet, disagreements on EVSL tariff cuts relegated the negotiations to the WTO. Shifting its policy to Asia, fast-track authority under the Trade Promotion Authority allowed the Bush administration to forge various bilateral FTAs and has led to the development of what is described as a ‘noodle bowl' of FTAs in Asia. Yet, total export coverage under these FTAs is only about 10% if we exclude NAFTA; thus the economic rationale for such accords, at least in the US case, appears wanting.

Finally, Mr. Aggarwal examined the possibility of a free trade area of the Asia-Pacific (FTAAP). Based on his study of APEC, Mr. Aggarwal believes that the FTAAP is unlikely to come into being in the near future. He offered four reasons for its dim prospects:

1. countries have few incentives to stop pursuing bilateral agreements;
2. East Asians may be skeptical because they see this as an effort to prevent them from developing their own regional institutions;
3. large US trade deficit with the People's Republic of China makes it difficult to develop a political coalition in support in the US for such an agreement; and
4. APEC, being a weak institution, can not be relied upon to facilitate FTAAP.

Based on his reading of the 2009 US Office of the Trade Representative Report and current issues, Mr. Aggarwal argued that trade policy is currently a low priority for President Obama in view of pressing issues, such as healthcare reform and economic recovery, and thus the US is unlikely to push hard for an FTAAP at this point. In lieu of the FTAAP, the Trans-Pacific Partnership Economic Partnership between New Zealand, Chile, Singapore, and Brunei Darussalam (the P4 group), touted as high-quality FTAs, may provide an avenue to develop an FTA in the Asia-Pacific. Mr. Aggarwal suggested reconciling current agreements through the establishment of a central clearing house. Finally, he reiterated that buying off winners, the result of open sectoralism and bilateral approaches, may reduce the possibility of future support for global negotiations. He urged collective action to counter the piecemeal preferential approach and to continue the liberalized trade regime under the GATT-WTO framework.