In An APEC Trade Agenda? The Political Economy of a Free Trade Area of the AsiaPacific, Charles Morrison and Eduardo Pedrosa, eds., Singapore: ISEAS, 2007.

The Political Economy of a Free Trade Areaof the Asia Pacific: A U.S. Perspective
Vinod K. Aggarwal
Professor and Director
Berkeley APEC Study Center
802 Barrows Hall, #1970
University of California
Berkeley, California 94720-1970
Tel.: 510-642-2817
Fax: 510-643-1746
Email: vinod@berkeley.edu

Paper prepared for an ABAC-PECC study on the “The Feasibility of the Free Trade Areaof the Asia Pacific.” I would like to thank David Guarino for his extensive research work
and insightful comments and arguments on all aspects of this paper. I also have benefited
from Jonathan Chow, Min Gyo Koo, Elaine Kwei, Kun-Chin Lin, and John Ravenhill’ssuggestions.

INTRODUCTION
What are the prospects for a free trade area in 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 anarrowly 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 ofwhether 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 tobackfire and simply further undermine prospects for successful completion of the Doha
Round. Instead, I suggest that APEC should play an active role in monitoring theproliferation of bilateral trade agreements in the region and work to promote themultilateral trade agenda.
To briefly elaborate, the logic of my argument runs as follows. With respect tothe current U.S. political economy of trade, two developments are of particularsignificance. First, the U.S. strategy of “competitive liberalization” in which it pursues
bilateral and minilateral agreements, both sectorally and broadly, with the intent ofstimulating 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
1

For a discussion of the pros and cons of competitive liberalization, see Feketekuty 1998, Aggarwal and
Lin 2002 and Bergsten 1996, 2002, among others.

1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 incontrol of the trade agenda. Thus, those who bemoan the proliferation of bilateral andregional 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 theirvery 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—has been blamed by many on the rigidity of the yuan’s exchange rate—toincreasingly question the benefits of free trade for the U.S., particularly with countries
specializing in low-cost exports. The threat of across-the-board tariffs of 27.5% on all
Chinese imports highlights the seriousness of this issue.

Although such a tariff isunlikely to pass, it has served as a rallying cry for an assortment of protectionist groups in
the U.S. and allied groups who have linked security concerns, labor 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 (FTA) that involves China will effectively be dead on arrival in Congress
for the foreseeable future.

2

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 tradefacilitation activities and with respect to other issues such as security and theenvironment, 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 beaffected by possible success or failure of the Doha Round? If the Doha Round is
successful, states will be busy implementing a complex agreement and the FTAAP would
be low on everyone’s agenda. If the Doha Round fails, the evidence suggests that U.S.
industries are much more likely to push for bilateral trade agreements rather than an
FTAAP. Asia and the EU are likely to reciprocate the United States’ response, further
fostering the proliferation of bilateral accords. Having set in motion a pernicious courseof competitive liberalization, putting the genie back into the multilateral bottle will be a
Herculean task. Here, APEC could play a useful role in attempting to monitor andreconcile such accords and possibly lead a movement to impose a moratorium androllback of this disastrous trend. In short, regardless of the Doha Round’s success or
failure, I believe that an FTAAP is not politically viable at the moment from a U.S.
perspective.
The remainder of the paper is organized as follows. Section I characterizes themany different types of trade agreements that might be negotiated, both in theory and inpractice. Section II then considers the political problems that have been created through3

competitive liberalization. Specifically, based on the framework developed in Section I,
it shows how U.S. policy has moved away from the previous strong commitment tomultilateral multi-product trade liberalization as the central approach to bilateral andminilateral broad and sector specific accords. To examine the prospects of an FTAAP,
Section III considers the likely domestic political dynamics of current U.S. trade policy,
the importance of the U.S.-China trade deficit, and APEC’s current role. In conclusion,
Section IV examines the impact of these elements by considering FTAAP’s prospects inthe scenarios of both success and failure in the Doha Round, as well as positive roles that
APEC might play.

I. VARIETIES OF TRADE GOVERNANCE
In the post-World War II period, states have utilized a host of measures to regulate tradeflows. Yet in their examination of such accords, analysts have conflated different type ofarrangements and used them synonymously. For example, the term “regional agreement”
has been used to refer to widely disparate accords such as APEC, the Asia Europe
Meeting (ASEM), the North American Free Trade Agreement (NAFTA), intraregionaland extraregional bilateral free trade agreements, and even sectoral agreements such as
the ITA.2
This conceptual ambiguity and under-differentiation of the dependent variablemakes it more difficult to develop causal arguments to account for specific outcomes. To
more clearly specify different types of trade arrangements, I focus on several dimensions:the number of participants involved in an agreement, product coverage, geographical2

See for example, Mansfield and Milner 1999, p. 592, who recognize the problematic nature of
the term “regionalism” but then proceed to use this term in their analysis.

4scope, market-opening or closing, and institutionalization.

I define the number ofparticipants in terms of unilateral, bilateral, minilateral, and multilateral participation inan agreement. I use the term bilateral to refer to two countries and minilateral to morethan two.3 In terms of product coverage, the range is from narrow (a few products) tobroad (multiproduct) in scope. Geographical scope differentiates between arrangementsthat are concentrated geographically and those that bind states across great distances. A
fourth dimension addresses whether these measures have been either market opening(liberalizing) or market closing (protectionist). Fifth and finally, one can also look at thedegree of institutionalization or strength of agreements.4 Table 1 summarizes a typologyof trade agreements with illustrative examples based on these dimensions but omits
discussion of the degree of institutionalization for presentation purposes.

Sectoral Unilateralism
Cell 1 focuses on unilateral sectoral market opening or closing measures, the classic
example of is the British Corn Laws of 1815 and their subsequent removal in 1846.5
Although some sectoral opening took place in the twentieth century, a variant of sectoral
opening that is tied to bilateral bargaining took place in the late 1980s and 1990s. The
United States used Super 301, a congressionally mandated trade policy instrument, to3This usage differs from that of Yarbrough and Yarbrough 1992, which conflates third party
enforcement with these terms so that “bilateral” for them can also mean three countries, a highly
counterintuitive use. Keohane 1990 refers to an agreement among three or more states asmultilateralism. Richardson 1987 is consistent with my usage.
4
Of these, the dimension of geographical scope is the most controversial. It is worth noting that
this category is quite subjective, since simple distance is hardly the only relevant factor in
defining a “geographic region.” Despite the interest that regionalism has attracted, the questionof how to define a region remains highly contested. See the discussion by Mansfield and Milner
1999, Katzenstein 1997, and Aggarwal and Fogarty 2004, among others.
5
See Schonhardt-Bailey 1996.

5

threaten closure of its market and force other countries to “unilaterally” open up theirmarkets in specific products. This particular form of sectoralism sparked a heatedscholarly debate. Jagdish Bhagwati and Hugh Patrick, for example, dub this unusual U.S.
practice “aggressive unilateralism.”6

Table 1: Classifying Varieties of Trade Governance7

NUMBER OF PARTICIPANTS
Bilateral

PRODUCT SCOPE

Unilateral

Few
Products(Sectoral)

Many
Products(1)
UK Corn
Laws(1815)UK CornLawremoval(1846)
Super 301
(1990s)(7)
UK(1860s)Smoot
Hawley(1930)

Minilateral

GeographicallyConcentrated(2)
U.S.-Canada
Auto Agreement(1965)

Geographically
Dispersed(3)
U.S.-Japan VERs
and VIEs (1980s1990s)

GeographicallyConcentrated(4)
ECSC (1951)

Geographically
Dispersed(5)
EVSL (1997)

Multilateral(8)
Canada-U.S.
FTA (1989)
Japan-South
Korean FTA(undernegotiation)(9)
U.S.-Israel FTA(1985)
U.S.-Singapore
FTA (2004)
Japan-Mexico
FTA (2004)

(10)
EC/EU
(1958/1992)
ASEAN (1967)
Mercosur (1991)
NAFTA (1993)(11)
APEC (1989)
AFTA (1991)
EU-Mercosur(undernegotiation)(12)
GATT /WTO(1947/1995)(6)
LTA (1962)& MFA(1974)ITA (1997)
BTA (1998)
FSA (1999)

Sectoral Bilateral Regionalism
In cell 2, we have sectoral agreements between a pair of countries that are geographicallyconcentrated. From a market-opening perspective, this approach often reflects pressuresfrom politically strong but narrow interests that are pursuing greater economies of scale.

6

Bhagwati and Patrick 1990. This is a somewhat different usage from my own focus on“unilateral” in the sense of removal of restraints by one county without an agreement. As withvoluntary export restraints (VERs), the unilateral vs. bilateral aspect is often muddied by coercive
actions.
7
Adapted from Aggarwal 2001a.

6

The resulting arrangements tend to promote intra-industry trade.8 The best example ofthis kind is the U.S.-Canada Automotive Products Trade Agreement of 1965. Prior to the1988 Canada-U.S. Free Trade Agreement (CUSFTA), the Auto Agreement was the only
major success in the long-standing effort to liberalize bilateral trade between the U.S. andCanada.

Sectoral Bilateral Transregionalism
Cell 3 refers to sectoral agreements between two countries that are geographicallydispersed. Examples of this sort of protectionist agreement include VERs and potentiallymarket-opening measures such as voluntary import expansions (VIEs), both of whichhave generally but not always crossed regions.9 The word “voluntary” is obviously
misleading as such agreements are often the result of coercive pressures. These sorts ofagreements set off a lively debate about “mismanaged trade” and the notion of a “fair andlevel playing field.”10More recently, a less coercive example of bilateral sectoral

liberalization can be seen in the negotiations between the U.S. and EU over the
streamlining of testing and approval procedures through the creation of Mutual
Recognition Agreements in several sectors.11

Sectoral Minilateral Regionalism
In cell 4, we have sectoral agreements between three or more countries that are
geographically close to each other. The best example is the European Coal and Steel8

See Milner and Yoffie 1989.
See Aggarwal, Keohane, and Yoffie 1987 on VERs and Bhagwati 1987 on VIEs.
10
See Tyson 1992 and Irwin 1994.
11
See Fogarty 2004.
9

7

Community (ECSC), created in 1951.

Its main task was to integrate the postwar

European coal and steel industry, but it also served as the foundation and stepping stone
for the political and economic union of Europe. From the start, the ECSC faced criticism
for its inconsistency with Article 24 of the General Agreement on Tariffs and Trade(GATT), which calls for liberalization on a multiproduct basis, rather than only for a few
products. Although challenged as being inconsistent with the GATT by Czechoslovakia,
the ECSC members managed to obtain a GATT waiver of obligation.12 After the ECSC
evolved into the European Economic Community, the issue of sector-specific accords
became moot.

Sectoral Minilateral Transregionalism
Cell 5 provides an example of geographically dispersed sectoral transregionalism. One
example is the case of the Early Voluntary Sectoral Liberalization (EVSL) under the
auspices of APEC. In Vancouver in 1997, ministers agreed to consider nine sectors as a
package for fast track liberalization. The United States sought such a sector-specificpackage deal to discourage countries from picking and choosing sectors based on
domestic concerns. This strategy initially appeared viable but quickly ran into difficulties
as Japan and several other countries particularly objected to the liberalization ofagriculture, forestry, and fishery products in the context of the East Asian financial crisis.
In the end, the package was sent to the WTO rather than being considered forliberalization at the APEC level.

12

Curzon 1966, pp. 266-268.

8

Sectoral Multilateralism
Cell 6 provides an example of multilateral sectoral accords. This category includes
market-opening measures such as the ITA, the Basic Telecom Agreement (BTA), and the
Financial Service Agreement (FSA) as well as market-closing measures such as the Long
Term Arrangement on Cotton Textiles and the Multfiber Arrangement, the latter
expanding managed trade beyond cotton products.

The emergence of these types ofagreements is a particularly important development. Laura Tyson, for example, hasargued that among multilateral trade options, this sectoral approach is a sound alternative
to the multi-sector WTO approach.13 As we shall see below, however, such accords may
actually retard progress in trade liberalization by undermining the coalition for free tradeand may also lead to economic distortions.

Multiproduct Unilateralism
We turn next to broader multiproduct liberalization and protection. Cell 7 focuses on
unilateralism, the most significant example being nineteenth-century Britain. Unilateralliberalization was feasible for Britain thanks to its industrial strength, its limited
investment in transaction-specific assets for trade, and its quasi-monopsony power in raw
material and export markets—which contrasted with other countries’ limited alternatives
to importing British manufactured goods.14 Contemporary examples include unilateralliberalization measures taken by Australia, New Zealand, Chile, Hong Kong, andSingapore. The most important market-closing measures in took place in the U.S. with

13

Tyson 2000.
Yarbrough and Yarbrough 1992. McKeown 1983 makes a strong case that Britain did notexhibit hegemonic power in the move to liberalization in the nineteenth century but rather chose
to liberalize on its own.

14

9

the Smoot-Hawley Tariff of 1930 that set a cycle of trade protectionism in motion andaggravated the depression.

Multiproduct Bilateral Regionalism
Bilateral arrangements of both a regional and transregional actor scope have rapidly
proliferated over the last few years. Cell 8 refers to bilateral trade agreements covering
multiple products between a pair of adjacent countries, such as the CUSFTA of 1988 andJapan-South Korea preferential trade agreement (PTA) (under negotiation). More often
than not, such agreements draw upon not only geographic, historic, and cultural affinities
but also complementarities in economic structure. In order to reduce the costs related togeographic distance and to maximize the benefits from economic size, analysts argue thatneighboring countries will often form preferential trade agreements (PTAs) with one
another, creating a natural trading bloc.

Multiproduct Bilateral Transregionalism
In cell 9, we have cases of geographically dispersed bilateral agreements covering
multiple products. Examples include PTAs between the United States and Israel (1985),
Mexico and Israel (2000), the United States and Jordan (2001), Japan and Singapore(2001), South Korea and Chile (2002), the United States and Singapore (2004), and Japanand Mexico (2004).

Some of these bilateral PTAs—for example, the U.S-Israel

agreement and U.S.-Jordan one—have been clearly motivated primarily by politicalstrategic rather than economic reasons.15 Some such as the PTAs between Japan andSingapore and South Korea and Chile—are largely designed for the purpose of “training”
15

Aggarwal and Urata 2006.

10

or “capacity-building” for broader and deeper trade liberalization. More recently, thistraining and capacity-building objective has been widely sought in East Asia as many inthe region have begun to seek PTAs with little prior experience in their formation.16

Multiproduct Minilateral Regionalism
Cell 10 focuses on geographically concentrated minilateral agreements. For the past
decades, these types of accords have attracted the most scholarly attention, commensuratewith the rise of regional trading arrangements since the 1960s.

Conventional

explanations for the move toward minilateral regionalism have focused on both economic
and political-strategic motivations.

Some economic arguments include: enlarging

economies of scale without excessive global competition; increasing the attractiveness ofan economy to foreign capital; and creating natural trading blocs according to geographic
proximity.17

Political-strategic economic reasons include signaling or strengthening

one’s bargaining position in relation to more powerful partners; responding to the erosionof U.S. support for multilateralism; locking in a domestic reform agenda; a domino
effect; limiting free rider problems; reducing transaction costs between negotiating
parties; and lowering the political salience of negotiations.18 There has also been asignificant amount of work examining regional variations in terms of the nature, strength,
depth, and scope of minilateral arrangements. These works usually compare European orNorth American “success” with Asian or Latin American “failure,” focusing on
historical, cultural, politico-institutional differences within and between different
16

Koo 2006.
On economies of scale, see Milner 1997; on foreign capital, see Lawrence 1996; and on natural
trading blocs, Frankel 1997.
18
See respectively Milward 1992; Gilpin 1987 and Krasner 1976; Haggard 1997; Oye 1992 andBaldwin 1997; and Yarbrough and Yarbrough 1992 among others.
1711geographical groupings.19 It is worth noting that all of these explanations, which haveseemingly focused on “regionalism,” fall in fact into several cells of my typology,
namely 2, 4, and 8—and, to some extent, cell 11 as well, indicating the conceptual
ambiguity and under-differentiation inherent in the existing literature on regionalism.

Multiproduct Minilateral Interregionalism
Another important recent development in trade arrangements concerns links that spancountries across continents, as noted in Cell 11. Many analysts lump their examination of“minilateral regional” accords such as NAFTA and the EU with those of “minilateralinterregional” arrangements such as the EU’s efforts to link up with Mercosur, although
the causal factors behind minilateral interregionalism are often quite different from thosedriving minilateral regionalism.
The term “interregionalism” can itself be broken down into more specific types,
based on the prevalence of PTAs and/or customs unions as constitutive units withininterregional agreements.

In work with Edward Fogarty, I refer to an agreement as“purely interregional” if it formally links free trade areas or customs unions, as in thecase of EU-Mercosur.20 If a customs union negotiates with countries in different regions,but not with a customs union or free trade agreement, we refer to this as “hybridinterregionalism” (e.g., the Lomé Agreement). Finally, if an accord links countries
across two regions where neither of the two negotiates as a grouping, then we refer to thisas “transregionalism” (e.g., APEC). These sub-categories of interregionalism suggest the19
20

See Haggard 1997 and Katzenstein 1997.
Aggarwal and Fogarty 2004.

12importance of taking into account the diverse driving forces and effects ofinterregionalism—as opposed to more “garden-variety” regional arrangements.

Multiproduct Multilateralism
Finally, cell 12 refers to the case of global, multiproduct trading arrangements such as the
GATT and its successor organization, the WTO. Neoclassical trade theory argues thatunilateral trade liberalization is the best means by which to promote overall economic
welfare. Though theoretically solid, this option is often not politically feasible. As asecond-best option, therefore, economists have preferred multilateral trade strategies to
sub-multilateral, preferential approaches.

Though highly successful throughout the

postwar period, multilateral trade forums at the global level have increasingly
encountered difficulties in hammering out new terms of trade liberalization. This, in turn,has fueled interest in preferential arrangements at the sub-multilateral level.

II. THE EVOLUTION OF U.S. TRADE POLICY
What trends have we seen in U.S. trade policy strategy in the post-WWII period? As weshall see, the decisive shift in the types of trade arrangements from multiproductmultilateral negotiations to a variety of other forms came in the mid to late 1980s in the
midst of the Uruguay Round negotiations.

This analysis and categorization of theevolving landscape of U.S. trade policy based on Table 1 helps to provide the necessary
background to understand the current political economy of U.S. trade policy and its
implications for attempting to create an FTAAP, a topic we take up in Section III.

13

Multiproduct Multilateralism: U.S. Trade Policy from the Post-World War II Period to
the Early 1980s21
With a dominant military force, a large market, enormous productive capacity, and a strong
currency and financial system, the U.S. was well positioned to assume global responsibility atthe end of the Second World War. It acted as military leader of the Western alliance, served
as the world’s central banker, and provided the major impetus for international tradeliberalization. As a result, the 1950s and 1960s were marked by unprecedented economic
growth and development. In particular, the nested context of the international trading system
within the overall security system gave the U.S. executive leverage to resist domesticallyoriented protectionist groups. The president could resist both congressional and interest
group pressures by raising the specter of the Soviet and Chinese communist threat to U.S.
interests, thereby allowing it to advance Cold War concerns over narrow parochial interestsand foster free trade.22 During this period, the U.S. maintained a coherent approach to the
trading system ⎯ founded on its interest in promoting multilateralism ⎯ and ensured that its
trading partners grew to buttress the Western alliance against Soviet encroachment.
The proposed post-WWII trade and monetary systems—consisting of the
Bretton Woods regime and the International Trade Organization—were cast at a global
level and depended on U.S. hegemonic resources and leadership. In addition, with
Western Europe and Japan ravaged by the war, the Cold War context further reinforced the
U.S. desire for rebuilding these economies. But despite this positive security context, a
coalition of protectionists and free traders in the United States, each of whom thought that the21

This subsection draws heavily on Aggarwal and Lin 2002, which focuses on the pitfalls of what we term
“opportunistic liberalization” and where we characterize U.S. trade policy as being recently characterized
as strategy without vision. See also the excellent concise discussion of historical trends in U.S. trade policy
in Bergsten 2002. The classic account remains Destler 2005.
22
See Aggarwal 1985 for a discussion of the nesting of economic issues with a security context.

14

International Trade Organization (ITO) was an excessive compromise, prevented the ITOfrom securing Congressional approval and thus led to its death.23
Still, the U.S. executive branch did not simply give up. With the ITO moribund, theU.S. promoted a temporary implementing treaty, the GATT, as the key institution to manage
trade on a multilateral basis in 1948. As a trade ‘institution’, the GATT got off to a difficult
start, representing a stopgap agreement among ‘contracting parties’—rather than a true
international institution. Originally brokered in parallel with ITO negotiations, the 23 GATT
members negotiated a series of tariff concessions and free trade principles designed toprevent the introduction of trade barriers.

Unlike the ITO, GATT negotiations weresuccessfully concluded and signed in Geneva in October 1947. Under the agreement, over
45,000 binding tariff concessions were covered, constituting close to $10 billion in trade
among the participating countries.
As the sole interim framework for regulating and liberalizing world trade, the GATT
turned out to be highly successful at overseeing international trade in goods and progressively
reducing trade barriers.24 The Kennedy Round of 1962-67 proved to be the most dramatic
facilitator of trade liberalization. GATT membership increased to 62 countries responsible forover 75% of world trade at the time. New tariff concessions reached over 50% on many
products as negotiations expanded from a product-by-product approach to an industry/sectorwide method, while overall tariff reductions were 35%.25 The Tokyo Round of 1973-79 led

23

Diebold 1952.
While the Annecy Round of 1949 resulted in 5,000 more tariff concessions and the entry of ten new GATT
members, the Torquay Round of 1951 led to an overall reduction of close to 25% and the inclusion of four new
contracting parties. The 1956 Geneva Round that followed resulted in further agreement of tariff reductions
worth approximately $2.5 billion. Under the terms of the Dillon Round of 1960-61, for the first time, a single
schedule of concessions was agreed for the recently established European Economic Community, based on the
Common External Tariff. Also, tariff concessions worth over $4.9 billion in trade were also negotiated. In total,
tariff reductions for the first five rounds amounted to 73%. Economic Report of the President (1995), p. 205.
25
Economic Report of the President (1995), p. 205.
24

15

to a record 99 countries agreeing to further tariff reductions worth over $300 billion of trade
and an average reduction in manufacturing tariffs from 7% to 4.7%. In addition, agreements
were reached on technical barriers to trade, subsidies and countervailing measures, importlicensing procedures, government procurement, customs valuation and a revised antidumping code.
This period is often dubbed the “golden age” of trade liberalization, witnessing a
dramatic reduction of border barriers. But while this golden age of globalism was marked bysignificant coherence, it is worth noting that the 1950s were already marred by exceptions toa multilateral multiproduct approach to negotiations. Indeed, sectoralism emerged in textiles
and in oil trade as early as the mid-1950s, while temporary VERs in textiles and apparelevolved into the increasingly protectionist multilateral MFA over a period of 40 years.26
Yet however repugnant the development of sector-specific arrangements, the U.S.
executive maintained a focus on free trade. For President Kennedy, textiles and apparelprotection was simply the necessary price to pay for the broader objective of what cameto be known as the Kennedy Round of GATT negotiations. Most crucially, despitedeviating from the norms of the GATT in some respects, the Long Term Arrangement on
Cotton Textiles and the MFA were carefully nested in the GATT, and indeed theimplementation and enforcement structure were housed in Geneva.
In the context of the negotiation of GATT rounds, the U.S. executive continued to
face protectionist pressure from specific industries and was repeatedly forced toaccommodate them. Soon after the Kennedy Round was concluded, the steel industry
managed to secure voluntary export restraints to limit steel imports from Japan and the26

For an analysis of the creation and evolution of the textile regime, see Aggarwal 1985.

16

EEC in 1969.27 These VERs were dropped in 1974, but since then various new accords
to limit steel imports have repeatedly been imposed and dropped. In footwear, orderly
marketing arrangements were negotiated with Taiwan and South Korea in 1977, but thesewere dropped in 1981 and have not been reimposed.

Similarly, OMAs restricting

televisions from Japan, Korea and Taiwan came into effect from 1977 to 1979, but werethen dropped from 1980 to 1982. In autos, President Reagan negotiated a VER with theJapanese in 1981, but by 1985, these had also been dropped.
The most important issue to keep in mind when thinking about the implications ofsector-specific arrangements is their purpose. For example, as in the case of sectoralarrangements in textiles and apparel, President Kennedy removed opposition by anindustry that viewed itself as losing from freer trade. By appeasing this potent opponent,
Kennedy was able to strengthen the coalition for free trade. Similarly, other agreements
as in televisions, footwear, and autos have come into being for similar reasons, but in thecase of those industries, were relatively temporary and have not been reimposed. By
contrast, as I argue below, competitive liberalization has had the opposite effect, instead
weakening the pro-free trade coalition. Thus, we must be careful in assessing the pros
and cons of sectoral initiatives.
A second key deviation from the multilateral process was the development ofregional accords.

But the most significant of these—the European Coal and Steel

Community, which evolved into the European Economic Community (EEC) and now theEU—were backed by the U.S. with overall security concerns in mind. Indeed, as wehave seen, when some criticized this accord as being inconsistent with GATT Article 24,

27

See Aggarwal, Keohane, and Yoffie 1987, which models the factors that explain why different industries
have been able to secure protection of varying length.

17

the U.S. supported a waiver for the ECSC in the GATT. For its part, however, the U.S.
refused to engage in the negotiation of regional trading accords and persisted with its
multilateral multiproduct approach, albeit with occasional deviations on a sectoral basis
as I have noted.
Table 2 illustrates the various trade agreements of which the U.S. was a part
during the period of the 1950s to the early 1980s.

Table 2: U.S. Trade Policy: 1940s to early 1980s

NUMBER OF PARTICIPANTS
Bilateral
Unilateral

PRODUCT SCOPE(1)Minilateral

GeographicallyConcentrated(2)

Geographically
Dispersed(3)

U.S.-Canada Auto
Agreement (1965)

U.S.-Japan, S.
Korea, Taiwan,
EC VERs(1960s-1980s)

Few
Products

GeographicallyConcentrated(4)

Geographically
Dispersed(5)

Multilateral(6)Long Term
Agreement on
Cotton Textiles(1962)
Multi-Fiber
Arrangement(1974)

(7)

(8)

(9)

(10)

(11)

Many
Products(12)
GATT (1947)

As noted, the dominant U.S. approach during this period was clearly a GATT-based
multilateral multiproduct approach, with occasional highly focused deviations. Asidefrom the sectoral protectionist arrangements, the only other accord of any significancewas the U.S.-Canada auto agreement.

This agreement, tied to the co-production

arrangements across the border, received a formal GATT waiver of obligation.

18

But in the early 1980s, following the Tokyo Round, change in the traditional
approach was clearly in the air. The U.S. began to fear that European interest was now
focused on widening and deepening of its regional integration efforts. With respect to the
GATT, the 1982 effort to start a new round proved to be a failure, as most countries criticized
the U.S. for attempting to included services and other new issues on the agenda. Withproblems in the GATT, in 1984, following the failed 1982 GATT Ministerial meeting, theU.S. Trade and Tariff Act authorized the administration to actively negotiate bilateral free
trade agreements. Soon thereafter, the U.S. negotiated the Caribbean Basis Initiative (1983)
and the U.S.-Israel free trade (1985) agreement, made overtures to ASEAN, and undertook
sectoral discussions with Canada in 1984 (which ended in failure). But the direction was
now clear: the U.S. now was willing to shift its own strategy away from pure multilateralism.

Trade Policy after the mid-1980s: One Step Forward, Two Steps Backward28
After considerable discussion, particularly over the inclusion of services, the GATT Uruguay
Round got underway in 1986. Yet the U.S. kept up the pressure of using alternatives to the
GATT to put pressure on other states in the ongoing negotiations. The signal was clear.
Treasury Secretary James Baker warned in 1988:
If possible we hope that this ... liberalization will occur in the Uruguay
Round. If not, we might be willing to explore a market liberalizing club
approach through minilateral arrangements or a series of bilateral agreements.
While we associate a liberal trading system with multilateralism, bilateral or
minilateral regimes may also help move the world toward a more open
system.29
A high level of contentiousness continuously threatened the conclusion of the round.
In part, this reflects the changing balance of power among more actors in the system, the2829

Adapted from Bergsten 2002’s “One Step Backward, Two Steps Forward” subtitle.
Toronto Star, January 6, 1988.

19

dissolution of the liberal consensus and inclusion of diverse interests, and the unwillingnessof the U.S. to continue to be the lender and market of last resort. The era of détente and thesubsequent end of the Cold War further weakened the security argument for continuing
economic concessions in broad-based trade negotiations.
After considerable delay, the Uruguay Round came to a conclusion in 1993. But
the U.S. was no longer solely committed to the multilateral route, as illustrated by its
policy shift beginning in the mid-1980s. On a multiproduct basis, the U.S. created its
first bilateral agreement with Israel in 1985, and a year earlier had created a preferential
trading agreement for the Caribbean countries. But these rather minor deviations weresuperseded by the very significant 1987 free trade area with Canada, the United States’
founding membership in APEC in 1989, the initiation of negotiations with Mexico that
led to the 1993 NAFTA agreement, and ongoing negotiations for a Free Trade Area of
the Americas.
On a sectoral basis, while continuing to be part of the protectionist Multifiber
Arrangement, the U.S. moved to a new tack with the conclusion of “open sectoral”
multilateral agreements in information technology, telecommunications, and financial
services from 1996 to 1998. It is worth examining the implications of these open sectoral
agreements at length. Laura Tyson, for example, has argued that among multilateral
trade options, this sectoral approach is a sound alternative to the multi-sector WTO
approach. In her words,... the global-round approach to trade talks, involving all WTO participantsin a comprehensive agenda requiring bargains across several sectors, may
have outlived its usefulness. Focused negotiations on trade issues in
specific sectors among a smaller group of WTO members are a promising20

alternative. Such negotiations have produced significant agreements in
information technology, telecommunications, and financial services.30
Yet as I have argued elsewhere, open sectoralism can be politically hazardous.31
From a political perspective, sectoral market opening is likely to reduce political support
for multilateral, multisector negotiations. Because sectoral agenda setting involves alimited and easily polarized set of domestic interests, the margin for coalition building
and political give-and-take is much slimmer. Moreover, industries that have succeeded insecuring sectoral liberalization may pose a threat to a global liberalization agenda. These
groups will see little reason to risk their existing benefits by supporting their relocation in
the WTO-centered multilateral, multiproduct regime. By giving highly motivated liberalminded interests what they wanted in their specific sector, this approach contrasts sharply
with the longstanding successful policy that we have seen of giving often-temporary
relief to strong protectionist interests to remove their opposition to broader liberalization.
Thus, while such open sectoral liberalization seems attractive from an economic
standpoint, it may actually be one step forward and two steps backward when it comes tosecuring freer trade.
What about the trend in U.S. policy over the last few years? President Clinton
failed to obtain fast track authority during his tenure in the 1990s. Business groups
continued to worry that the EU was moving forward in the negotiation of trade accords,
particularly with eastward expansion. In 2001, the Business Roundtable argued:
Obviously, the best policy option is to build on the WTO
framework…However, it may take regional and bilateral initiatives tojumpstart the WTO. Alternatively, we may have to undertake the regional30
31

Tyson 2000.
This paragraph draws heavily on Aggarwal 2001b and Aggarwal and Ravenhill 2001.

21

and bilateral initiatives just to avoid discrimination by our more active
trading partners.32
Echoing this view, USTR Robert Zoellick argued that:
America’s absence from the proliferation of trade accords hurts ourexporters…If other countries go ahead with free trade agreements and theUnited States does not, we must blame ourselves. We have to get back in
the game and take the lead.33
Once President Bush obtained fast track authority (now known as trade promotion
authority), the U.S. proceeded to negotiate a large number of bilateral trade agreements(see Table 3 below), often for strategic reasons with little economic rationale or direct
trade benefit. Indeed until the recent initiation of negotiations with South Korea, the totalexport coverage of all the agreements to this point, excluding NAFTA, was little morethan 10%.
What are the international implications of the pursuit of bilateral trade
agreements? This so-called competitive liberalization strategy has created an important
negative dynamic. As John Ravenhill notes, at the end of 2001, of 144 WTO members,
only China, Hong Kong, Japan, South Korea, Mongolia, and Taiwan, had not signed apreferential trading agreement.34 This quickly changed with these members imitating the
U.S. strategy of negotiating bilateral accords, and in doing so contributing to the heavily
criticized “noodle bowl” in Asia.35 As was recently reported, "What makes [Japan's]
government eager to rush to sign FTAs is the rapid progress elsewhere . . . centered on
the U.S."”36

32

Business Roundtable 2001.
Office of the USTR 2001, 4.
34
2003, p. 2.
35
See Aggarwal and Urata 2006 on the proliferation of bilateral trade agreements in the Asia-Pacific.
36
Quoting the Tokyo Shimbun, Bernard Gordon, “The FTA Fetish,” Wall Street Journal, 17 November
2005.
33

22

And with the Asians and U.S. now actively moving forward, we have now comefull circle, with the EU now beginning to worry that it has been left behind in the bilateral
game. In a recent paper, Peter Mandelson, the European Trade Commissioner noted inJuly 2006 that the EU needed to ink bilateral deals to increase its competitiveness with
Asia and the U.S. As the Financial Times noted:
European business has argued that the EU’s reluctance to be seen as
undermining the World Trade Organization by negotiating bilateral deals
has seen it overtaken by competitors such as the U.S. and Japan that are
not shy.37
In short, the competitive liberal approach has not led to success in the pursuit of broad
scale trade liberalization. Instead, bilateralism has simply fostered more widespreadbilateralism.
To summarize U.S policy after the mid-1980s, Table 3 provides a snapshot of thevariety of agreements that the U.S. is now pursuing, and provides a sharp contrast withthe agreements that the U.S. pursued until the early 1980s.

III. The Political Economy of the FTAAP: Current U.S. Dynamics
With the sharp trend in U.S. policy toward competitive liberalization, and rapid
proliferation of bilateral trade agreements in the Asia-Pacific more generally, might an
FTAAP be an optimal trade arrangement and reinvigorate APEC? Unfortunately, myanalysis suggests that the answer to this question is a resounding “No”. Three key factors
underlie this pessimism. First, any U.S. domestic political coalition that might support
such a move has been undermined by bilateral and sectoral agreements, and these groups
have begun to prefer a bilateral route. Second, the U.S. trade deficit poses a significant
37

Financial Times, July 10, 2006, p. 9.

23

obstacle to any participation of China in an PTA, whether bilaterally or as part of abroader Asia-Pacific accord. And third, APEC is insufficiently institutionalized to play arole that could foster such an accord. Worse, APEC’s current benefits, however limited,
are likely to be further undermined by any such effort. Moreover, these arguments apply,
irrespective of whether a Doha Round agreement is signed in the near future or not.

The Missing Political Coalition for an FTAAPWith the U.S. pursuing competitive liberalization, particularly along a bilateral route, thecoalition for free trade has begun to fray, making it very unlikely that the U.S. executive
will be able to generate support for an FTAAP and secure passage of an implementing
bill in Congress.
With respect to general domestic implications of bilateral accords, a number ofanalysts see the political implications of bilateral agreements along the lines of the
problems identified with open sectoralism. As Ravenhill notes:
By providing a means to achieve liberalization without political pain, thenew bilateralism encourages protectionist interests and has the potential toweaken domestic pro-liberalization coalitions and especially demand for
multilateral liberalization. From the perspective of comprehensive global
trade liberalization, such effects are unambiguously bad.38

Turning to the U.S. specifically, and consistent with my argument about the limited
benefit of most U.S. PTAs, Richard Feinberg argues that “Bilateralism has opened thedoor to an explicit introduction of political criteria, in contradiction to GATT/WTO
apolitical universalism.” 39

38
39

Ravenhill 2006, p. 45.
Feinberg 2006, p. 113.

24

Table 3: U.S. Trade Policy: Mid-1980 to 2006
NUMBER OF PARTICIPANTS
Bilateral
Unilateral

Few
Products(1)
Super 301
(1990s)PRODUCT SCOPE(7)
Generalized
System ofPreferences(1976, 2002)
Andean Trade
Preference
Act (1991,
2002)

Many
Products

AfricanGrowth andOpportunity
Act(2000)
Caribbean
Basin
Initiative(1983, 2000)

GeographicallyConcentrated(2)(8)
Canada-U.S.
FTA (1989)

Geographically
Dispersed(3)
U.S.-Japan
VIEs (1980s1990s)
Australia FTA(2004)(9)
Israel FTA(1985)
Jordan FTA(2001)
Chile FTA
(2003)
Singapore FTA(2004)
Morocco FTA(2004)
Bahrain FTA(2005)
Oman FTA*(2006)
Peru TPA*(2006)
Malaysia FTA(UN)Thailand FTA(N)Panama FTA(N)
Korea FTA (N)Colombia FTA(N)

Minilateral
GeographicallyConcentrated(4)

Geographically
Dispersed(5)
EVSL (1997)

Multilateral(10)
NAFTA (1993)(11)
APEC (1989)
Dominican
Republic-Central
America FTA(2005)
Free Trade Areaof the Americas(UN)
South African
Customs Union
FTA (N)(12)
GATT/WTO(1947/1995)(6)
ITA (1997)
BTA (1998)
FSA (1999)

Key: An asterisk indicates that the agreement has been signed but not ratified. “N”
means currently being negotiated.

This political dynamic has created a situation where the pursuit of bilateral trade
agreements has now given interest groups and their supporters an interest in theircontinuation. As Feinberg finds from his analysis:
This range of interests appeals not only to USTR and the Commerce
Department, but also to the U.S. departments of State and Defense, as wellas to the international offices in the Department of Labor and the25Environmental Protection Agency. When such a broad-based coalition of
bureaucratic interests gets behind a policy thrust, it is likely to endure.40
As the U.S. pursues a piecemeal approach, the passage of specific accords creates narrow
vested interests. For example, with respect to the CAFTA debate, one source commented
that the “deal drew concentrated fire from three well-organized constituencies -- textile
producers, sugar companies and unions. But because the CAFTA economies are so small,
U.S. business didn't mount as muscular a campaign as it did in the NAFTA vote.”41 For
its part, agricultural groups are interested in a broad agreement and would gain relatively
little from a purely Asia-Pacific agreement. The official U.S. advisory committee on
agriculture has warned:
The APAC takes this opportunity to reiterate its belief that highest priority
must be given to comprehensive agricultural trade reform in the Doha
Development Agenda round of negotiations. Only a WTO agreement candeliver full and equitable reforms in market access, domestic support, andexport subsidies. Some APAC members are concerned that a proliferationof FTAs, which only address market access, may have a negative impact
on negotiating equitable reform across the three pillars identified in the
Doha negotiations. Members are also concerned that Congressional
support for trade liberalization could erode through fatigue from constanttrade debates over individual FTAs.42
Other powerful lobbies are also wary of further opening. The textile and apparel industry
has received protection for over 50 years. Although the MFA was terminated at the endof 2004, the textile and apparel industries successfully secured restrictions on Chinese
textile and apparel imports in 2005 in the wake of the MFA’s removal. Currently, the40

Feinberg 2006, p. 112.
“CAFTA Vote Clouds Prospects for Other Trade Deals--Bitter Fight Reveals Fears Of Globalization, as
Talks In Doha Round Languish,” Wall Street Journal, 29 July 2005.
42
Agricultural Policy Advisory Committee for Trade, The U.S.-Peru Trade Agreement: Supplementary
Report of the Agricultural Policy Advisory Committee for Trade, 15 February 2006.
http://www.ustr.gov/assets/Trade_Agreements/Bilateral/Peru_TPA/Reports/asset_upload_file570_8967.pdf
41

26

textile and apparel industry is pushing to create separate negotiations on textiles andapparel once again. In a letter to the USTR, as the Journal of Commerce notes,…44 U.S. representatives called for separate negotiations for textiles.
Their letter included an implicit threat: If U.S. trade negotiators fail toaddress the concerns of textile manufacturers, it will "substantially
impact" congressional support for a Doha agreement on Non-AgriculturalMarket Access.43
With the textile industry’s success in securing new restraints on China in 2005, can one
really imagine that this key powerful player would support an FTAAP that would only
increase imports from low-cost producers in the Asia Pacific region? Indeed, even theratification of bilateral agreements faces bipartisan opposition. With respect to Vietnam,
for example:
A vote in favor of permanent MFN for Vietnam could be controversial for
Republicans with textile constituents given the opposition of the National
Council of Textile Organizations. NCTO has opposed the bilateral market
access deal on Vietnam because it fails to impose safeguards on
Vietnamese textile exports which it charges are heavily subsidized by thegovernment.44
The increasing opposition to trade liberalization, of any sort, is reflected in themood in Congress. Although many Republicans have increasing doubts about further
trade liberalization, particularly those from states with protectionist-minded industries,
the real opposition to trade agreements comes from the Democrats. Since the narrowpassage of fast-track authority in 2002, the congressional politics of U.S. trade policy
have become increasingly polarized, both in partisanship and in interest-grouprepresentation. Democratic opposition to the administration’s trade agenda has arisen
primarily over concerns about foreign labor and environmental standards, adverse effects

43“Grasping at straws; Textile industry groups want a special agreement for textiles at the Doha Round,”
Journal of Commerce, 26 June 2006.
44“McCrery Expresses Doubts About Trade Deals, Including Vietnam,” Inside US Trade, 9 June 2006.

27

for American employment, and human rights issues, aptly seizing trade policy as a tool tomobilize the Democratic base.
Although initial passage of Trade Promotion Authority (TPA) was barely
achieved after Republican concession to a program paying health benefits to workers
displaced by trade, most trade accords brought to Congress in the first few years of fasttrack generally met bipartisan acceptance. Major contention arose in 2005, however,with the vote to implement the Dominican Republic–Central America Free Trade
Agreement (DR-CAFTA). Democrats claimed the agreement would export American
jobs overseas without ensuring international labor standards were protected, and allowed
U.S. corporations to benefit from low labor costs by exploiting poor workers.

A

Washington Post article rightly called DR-CAFTA “the most fiercely contested tradeaccord in the past decade,” and in the end it passed the House by a vote of only 217 to215, a far closer victory than even the contentious NAFTA vote in 1993.45 The partisan
nature of the divide was clear from the vote – only 15 Democrats voted for theagreement, while only 27 Republicans voted against it. What DR-CAFTA revealed was
the potential power that a coalition of traditional protectionists (politicians obliged tovarious local industrial interests) and the champions of ‘linkage’ politics in trade policy(seizing upon labor, environmental, and human rights concerns) might possess if the
Republicans are unable to consolidate the party line on trade.
Since DR-CAFTA, Democrats in Congress have prioritized defeating bilateral
trade agreements negotiated under the auspices of the ‘competitive liberalization’strategy, recognizing both the current political weakness of the Bush administration and

45“U.S. Hopes for Momentum from CAFTA; Portman to Push WTO to Negotiate Global Agreement,”
Washington Post, 29 July 2005.

28

the potential trade policy has to garner key support from groups like the AFL-CIO in the
run-up to midterm elections. Most recent has been the furor over the negotiated U.S.Oman PTA, with House Democrats demanding that a clause be inserted into theagreement to insure against the use of forced labor in production.

USTR Schwab

responded by asserting that the negotiated text, bolstered by current U.S. law preventing
the import of goods produced by forced labor as well as promises by the Omani
government to reform its labor laws, was sufficient to prevent labor abuses. Some haveargued that the Oman FTA is a “political test drive” for a bigger Congressional battle tobe waged over a U.S.-Peru agreement over the next year.46 And indeed, Democrats
appear to be fighting agreements as much for party politics as much as principled
opposition.
Most of these pacts are likely to be passed by Congress in the end. But thesignificant opposition put forward on these limited and, all things considered, rather
inconsequential trade agreements reveals the current disbanded state of the muchballyhooed ‘consensus on free trade’ as well as how the deep partisan divide in Congresshas affected the feasibility of potential U.S. trade agreements in the future. In thiscontext, an FTAAP involving low-labor cost countries, those with human rights
violations, low labor standards, and a host of other red flags including religious freedom,democratic rights, environmental policies, and the like is hardly likely to win votes inCongress.
It is worth noting that the growing lack of interest in broad-based accords causedby the pursuit of a competitive liberalization strategy is hardly restricted to the U.S. In
discussing EU domestic dynamics, the Financial Times recently noted:
46“Free Trade and Security,” Wall Street Journal, 11 July 2006.

29

…unlike the last global round of negotiations, when movie studios, drug
companies, software makers, banks and manufacturers coalesced into aformidable free-trade lobby, the enthusiasm this time has been
narrower…The lack of business lobbying has been blamed in part by Peter
Mandelson, the EU trade commissioner, for the turning of the Doha
Round into what he called "the Ag-only round". He said that business had
failed to provide "countervailing pressure" to protectionist agricultural
lobbies.47

The Politics of the U.S.-China Trade Deficit
China’s ‘peaceful rise’ as the new engine of the global economy has become a highly
charged issue in U.S. domestic politics as economists warn of the ever-growing trade
deficit48 with dire predictions for the dollar and producers lamenting the capturing of theirmarkets by an authoritarian, ostensibly non-market economy. Charges of manipulation inforeign exchange markets to keep the renminbi undervalued have been levied by traditional
protectionists and economic forecasters alike who fear either the overwhelming competition
to key U.S. sectors or a sudden dollar collapse once Asian banks cease their buying frenzy of
U.S. securities.
Since China’s full accession to the WTO, cheap goods have flooded the U.S. market,
undercutting domestic producers and sending the U.S. trade balance with China into a rapid
downward spiral. In 1995, the U.S. ran a trade deficit with China of $33.8 billion; by 2005, it
had ballooned to over $201 billion (see Table 4).49 In the last four years alone, the bilateral
trade deficit has nearly doubled while the overall current account situation grows ever worse.
Producers particularly harmed by China’s emergence include manufacturing, textiles and47“US and European officials hope big companies flex their muscles to ensure deadlock is broken,”
Financial Times, 12 December 2005.
48
Bergsten 2005.
49
Source: U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washington D.C.
20233: http://www.census.gov/foreign-trade/balance/c5700.html

30

apparel, and steel, just to name a few. Among other issues, the Steel Trade Advisorycommittee has been pushing to prevent any PTAs with countries that might be seen to be
manipulating their currency (read China) of those engaging in subsidization of the industry. 50
To bolster their coalition, the steel industry has piggybacked on the China deficit andcurrency issue to garner wider support among producers for protection, attempting tostrengthen the ability of domestic producers across the industrial spectrum to tap into antidumping (AD) and countervailing duty (CVD) measures.
Many in Congress have seized upon the China issue for political purposes, either in
the name of workers or business, introducing a vast array of retaliatory measures that could
be taken against the PRC. The most extreme case is certainly the bipartisan SchumerGraham bill, which would impose an across-the-board tariff of 27.5% (the estimated damageof currency undervaluation) on all Chinese goods. Senator Charles Schumer (D-NY) has
said he will bring the bill to a vote in September, or whenever the Treasury declares China’s
currency policy to constitute “manipulation.”A politically weak Bush Administration has not had much luck in fending offpressure against China.

In the recent words of a Washington Post report: “The Bushadministration sought…to mollify Congress about problems in U.S.-China economic50

See Industry Trade Advisory Committee on Steel (ITAC-12) report entitled The U.S.-Peru Trade
Promotion Agreement (U.S.-Peru FTA), 18 January 2006.
http://www.ustr.gov/assets/Trade_Agreements/Bilateral/Peru_TPA/Reports/asset_upload_file765_8986.pdf

31

Table 4: US-China Trade Deficit
250,000.00

200,000.00(in millions of
US dollars)
150,000.00

100,000.00

50,000.00

0.00
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washington, D.C. 20233

relations…But the response from Capitol Hill was a mixture of scorn and denunciation,
underscoring the pressure from powerful lawmakers for a tougher approach toward
Beijing.”51

APEC’s Role

Much has been written about APEC’s origin and evolution.52 Here, suffice it to say that
APEC has clearly faced significant problems in fostering free trade in the Asia Pacificand the target dates for developed countries of 2010 and 2020 for all countries seems
increasingly unrealistic. In particular, the debacle over pursuing a sectoral approach toadvance trade negotiations (the Early Voluntary Sectoral Liberalization effort) put
51“Senators Deride U.S. Position on China; Currency System Is Called Unfair,” Washington Post, 19 May
2006.
52
See, for example, Funabashi 1995, Aggarwal and Morrison 1998, and Ravenhill 2001.

32

2005

APEC’s effort to promote trade liberalization in jeopardy, and since 1997, APEC hasdone little more than serve as a cheerleader for multilateral negotiations.53 As Charles
Morrison and I have argued,54 much of the weakness of APEC stems from its lack ofinstitutionalization. In recommending changes (in the year 2000), we argued that torealize its role in promoting trade, APEC needs to have a considerably stronger
Secretariat, in-house analytical capabilities, greater NGO participation, and a clearer
agenda and focus. Many of these recommendations would seem to remain valid.
In terms of APEC’s other roles, Elaine Kwei and I have argued that this groupinghas played an important role in ensuring that leaders in the Asia Pacific meet regularly, insetting new agendas, with respect to trade facilitation, and as a means of working toward
a greater cognitive consensus on issues of mutual concern. By assigning APEC theclearly divisive task of promoting an FTAAP in view of its current institutional
weakness, we risk further marginalization of APEC in an area of the world that remains
highly underinstitutionalized. Simply evoking fears of an East Asian economic grouping,as motivation for APEC to play a role in a trans-Pacific free trade agreement does notconstitute a compelling argument, and is one that Asian countries may well perceive as
simply a cynical American effort to divide them.

IV. DOHA OR NO DOHA—PROSPECTS FOR AN FTAAP

What are the prospects of an FTAAP from a U.S. political economy perspective? This
paper has argued that a combination of a weak political coalition for an FTAAP, the53
54

See for example, Aggarwal and Kwei 2005.
Aggarwal and Morrison 2000.

33

rising deficit with China, and APEC’s institutional weakness make such an accord
infeasible for the present.
Section I of this paper provided an analytical categorization of trade agreements
as an analytical backdrop to examine U.S. trade policy in the post World War II period. I
argued that traditional approaches to looking at trade arrangements have failed toadequately characterize different types of trade agreements, thereby missing the very realpolitical and economic forces driving types of trade accords.
Based on this analytical effort, Section II traced how the U.S. has moved awayfrom a traditional pursuit of multilateral multiproduct trade agreements to an increasing
focus on competitive liberalization including in particular an emphasis on open sectoraland bilateral trade agreements.

As I have argued, this approach has systematicallyundermined the coalition for free trade and diametrically opposed the previously
bipartisan effort that bought off protectionist interests with an eye to promoting broadscale trade liberalization.

The result of this failed effort has been to encourage acompetitive international dynamic that has delivered an increasing number of pernicious
globally negotiated bilateral trade agreements—without any of the claimed beneficial
effects on the negotiation of a broad-scale trade agreement that was the original raisond’etre of this misguided policy. Ironically, some of the same analysts who promoted themany advantages of the competitive liberal approach now wish to dampen this dismal
trend by calling for an FTAAP as yet another halfway house to freer trade.
Yet as Section III has systematically shown, the undermining of the tradecoalition through competitive liberalization, the rising trade deficit with China, andAPEC’s institutional weakness make the likelihood of U.S. support and successful

34

negotiation of an FTAAP unlikely. There is almost no political support for such anidea—or more accurately—active opposition by textile, steel, and other manufacturing
elements, as well as agricultural interests.

Moreover, the Congress is increasingly

moving to a bipartisan consensus against freer trade, particularly with respect to China.
In this political environment, an FTAAP is simply another pipe dream that may well haveas equally pernicious an effect as competitive liberalization for those who wish topromote freer trade and a more open global trading system.
To sum up, we can consider two scenarios, one with possible conclusion of a
successful Doha Round and another without, to examine how an FTAAP effort mightplay out. If a Doha Round is successfully negotiated, the motivation to pursue an
FTAAP will rapidly decline as states focus on ratification and implementation of theRound. The likely political struggles to pass an agreement will be high on the agenda ofmany states, and a new initiative to specifically promote free trade in the Asia-Pacificthat goes beyond the WTO (“Doha Plus”) would be unlikely to garner support in the
U.S., particularly in view of the ongoing deficit with China. In this context, APEC could
create a study group to identify possible issues that have not been handled in the
successful Doha Round, but discussion of an FTAAP would be premature. APEC could
also play a role in trying to put the genie of the politically malicious strategy ofcompetitive liberalization back in the bottle through an oversight role.
If the Doha Round fails, might the FTAAP emerge as a second best solution?
This notion also is problematic from a political economy perspective because U.S. goals
are widely divergent in the two forums.

What the U.S. is seeking in the Doha

negotiations—significant agricultural market access in the EU and industrial market

35

access in large emerging markets such as Brazil and India—are goals that cannot be
achieved to any significant extent at an Asia-Pacific bargaining table. Although somemight argue that an FTAAP might have better prospects than the currently moribund
Doha Round as the number of states involved would be smaller, this view reflects amisunderstanding of the political economy of trade negotiations. In fact, with a larger
number of states as in the Doha Round, the horse trading necessary to achieve a
successful outcome would yield an agreement that stands a significantly better chance ofbeing approved in the U.S. than a minilateral agreement that narrowly focuses on stateswith whom the U.S. runs massive trade deficits.
It is also worth noting that the potential for creating an FTAAP has been hurt by
the competitive liberalization efforts that have led to the accelerating negotiation ofbilateral trade agreements over the last few years in the Asia-Pacific.55 This approach has
fostered a coalition of pro-liberalization forces in the U.S. pushing state specific bilateralaccords in the Asia-Pacific, rather than broad-based regional trade initiatives. The
agricultural sector, for example, while preferring a multilateral route, has little incentive
to push an FTAAP. In fact, Asian and U.S. business groups say it is a “practical reality”
that agricultural concessions in the Asia-Pacific region would have to be dealt with on abilateral basis.56 More generally, a bilateral path with Korea and Japan avoids the key
domestic pitfalls for the U.S. that marks an FTAAP. The U.S. still faces significant
domestic pressure from the textile and manufacturing industries to prevent a further
increase of cheap imports from China, and an FTAAP agreement would open the55

See Aggarwal and Urata 2006 on the driving forces leading to the negotiation of bilateral trade
agreements in the Asia-Pacific.
56“U.S., Japan Business Groups Explore Possibility of Bilateral Trade Deal,” Inside US Trade, 5 May
2006.

36

floodgates not only to Chinese imports, but also to the less developed economies of
ASEAN such as Cambodia that present a similar low-cost import threat. The U.S. has theopportunity to pursue with Korea and Japan the same general goals as it pursued with
Singapore—deep trade agreements with high-value economies that avoid many of thedomestic political conflicts created by agreements with low labor-cost countries.
The increasing promise of U.S.-Korea negotiations has spurred the first serious
discussions of a U.S.-Japan integration effort, and pursuing this path would bring manyof the economic benefits of an FTAAP with few of the downsides. A deep liberalizationagreement with these two countries would mean significant U.S. access to key investment
opportunities, an opening of manufacturing and automotive markets, and possibly evenmuch-sought-after access to the agricultural markets of industrialized Asia.

With theU.S. pursuing such a path, an FTAAP would recede to the background. Instead, wewould likely see a further unfortunate proliferation of selective bilateral agreements by
Asian states in response to U.S. actions, adding more “noodles” to the bowl. From astrategic perspective, the continued prospect of such economic gains with minimal
political costs makes other more politically expensive options—like the vaunted FTAAP
proposal—far less less attractive than a bilateral path.
In short, with either success or failure in the Doha Round, I believe that an
FTAAP is not politically likely at the moment from a U.S. perspective.

APEC should

not currently be pushing an FTAAP that is infeasible for the time being and that would
undermine its positive contributions in other issue areas. Rather, APEC should serve as aforum to institutionalize the administration and negotiation of minilateral and bilateralagreements, so that the ‘noodle bowl’ of liberalizing efforts can be brought into some37

kind of logical order and into conformity with the WTO. In addition, APEC can usefully
pursue a number of functions that have been discussed at length by many scholars and in
this volume by Charles Morrison. These include the harmonization of standards, better
rules of origin, capacity building, peer assessment of compliance with APEC targets, andserving as a complementary institution to the WTO. Although one might think that
promoting schemes such as the FTAAP do no harm, as we have seen, the advocacy ofcompetitive liberalization as a means of securing trade liberalization has been a recipe fordisaster. Ideas, both good and bad, do have consequences.

38

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