2008-E-7
The US as a Bilateral Player:
The Impetus for Asymmetric Free Trade Agreements (FTAs)
Cintia Quiliconi1 and Carol Wise2
June, 2008

Paper presented at the International Symposium “Competitive Regionalism,” Ibuka
International Conference Hall, Waseda University, Tokyo, Japan. May 30 to 31, 2008.

1

Doctoral Candidate in Political Science and International Relations at the Universityof Southern California.
2

Associate Professor for the School of International Relations at the University ofSouthern California.

The US as a Bilateral Player:
The Impetus for Asymmetric Free Trade Agreements (FTAs)
Cintia Quiliconi and Carol Wise
Draft Five
July 14, 2008
The signing of the North American Free Trade Agreement (NAFTA) between
Canada, Mexico, and the US in 1992 constituted the first time the US had completed afree trade agreement (FTA) that included a developing country. Similar FTAs havesubsequently been negotiated between the US and developing countries, especially since
the office of the US Trade Representative (USTR) announced its strategy of competitive
liberalization in 2002. Ostensibly, these bilateral deals with “can-do” developing
countries such as Chile and Peru are meant to trigger additional FTAs with the US thatwould eventually add up to a more liberalized global trade network involving countries atvarying stages of development (Colvin, 2004). This, in essence, is the US strategy ofcompetitive liberalization as it has been articulated by the USTR during the 2000s. While
this strategy has not been confined to the developing countries, even those FTAs signedwith such developed countries as Canada (1988), Singapore (2003), and Australia (2004)
follow this asymmetrical pattern. Our purpose here is to analyze and shed light on the
dynamics of those more asymmetric FTAs that fall within the domain of North-South andNorth-North relations. In particular, we seek to better specify and critique US motives
and expectations around competitive liberalization as this strategy is now playing out in
Latin America and Asia.
Our subject invokes two main paradoxes. First, common wisdom tells us that
small countries would be better off by conducting multilateral negotiations where they1can form alliances based on their own regional agreements, which are more symmetricaland thus provide firmer ground on which to negotiate. Our second paradox concerns theself-defeating nature of the US move to the bilateral sphere. Although this competitive
liberalization strategy was purportedly launched to overcome the collective action
problems that have now suspended trade negotiations within both the multilateral (DohaRound) and hemispheric (Free Trade of the Americas, or FTAA) arenas, we would argue
that these deadlocks are also at least partially related to the failures of US leadership in
the realm of foreign economic policy in the 2000s.
Related to this argument, we highlight the fact that the US logic behindcompetitive liberalization mistakenly assumes that a bilateral strategy is more or lessinterchangeable with a regional or multilateral one. Yet, one obvious distinction between
these FTA formations is that multilateral agreements are based on the principles of nondiscrimination and most-favored nation (MFN), 1 whereas regional and bilateral FTAs
imply discrimination against non-members and the granting of benefits to members. It is
not surprising, then, that US bilateral accords, and those with developing countries inparticular, have derailed the commitments of the latter to see the multilateral negotiation
process all the way through to the completion of the Doha Round.
In the sections that follow we discuss why a competitive liberalization strategy
has been adopted by the US and how the emerging pattern of US bilateralism has affected
other types of agreements. Following the theoretical framework for this project laid out
by Katada and Solís (2008), we explore whether the signing of bilateral agreements by
the US with individual countries in Latin America and Asia was based on a follower

1

A main pillar of the original General Agreement on Tariffs and Trade (GATT), the most-favored nation
norm obligates all GATT/WTO members to apply the same tariffs and rules to all other GATT signatories.

2

strategy of emulating the economic path of other leading countries, or on competitive
concerns that span the economic, political and legal realms. We also consider whether thenull hypothesis is valid in each case, i.e. that the US FTA strategy is based on
independent decision making and not affected by the prior decision of other countries tonegotiate FTAs.
At the same time, we analyze the sorts of agreements that the US has been
pursuing and the links between US trade strategy and the stalemate that now plagues
trade negotiations at the multilateral and regional levels. The first section of the paper
hypothesizes about the impetus for the US government’s “competitive liberalization
strategy” and how it has affected ongoing trade negotiations within other venues; thesecond section maps those trade negotiations in which the US has been involved andanalyzes how these bilateral agreements have evolved since the mid 1980s; the third
section explores the kinds of agreements that are increasingly defining US bilateralism in
the Latin American and Asian regions and the divergent interests of participating
countries despite the outward similarities in FTA formation; the fourth section more
explicitly identifies the wave of US bilateral FTAs that has arisen in the 2000s; the final
section speculates about the differing logic of US bilateralism in the Latin American andAsian regions.

1. Competitive Liberalization as a Strategy Proper
Beginning with the implementation of NAFTA in 1994, and particularly since theadvent of the George W. Bush administration in 2001, there has been a sharp increase in
the number of bilateral trade agreements the US has signed with different partners. Prior

3

to this the US had negotiated just two bilateral FTAs, one with Israel in 1985 and asecond with Canada in 1988. It was the incorporation of Mexico into the US-Canada
bilateral agreement in 1992 that resulted in NAFTA, this also being the first US venture
into North-South negotiations outside of the GATT/WTO framework. Since 2004, the US
has completed and approved seven additional FTAs, the bulk of which represent thecompetitive liberalization strategy as defined in the introduction. In all, the countries
involved in these recent FTAs include: Chile, Singapore, Australia, Morocco, CAFTADR (Costa Rica, El Salvador, Nicaragua, Honduras, Guatemala and the Dominican
Republic), Bahrain, and Peru; agreements with Colombia, Panama and South Korea havenow been completed but still await Congressional approval.
Again, this marked shift toward competitive liberalization reflects the convictionof US trade policymakers that these agreements are intended to complement ongoing
multilateral negotiations in the WTO/Doha Round, and simultaneously facilitate regional
negotiations like that of the FTAA, which involved all 34 democratically elected
countries in the Western Hemisphere. As both sets of negotiations have fallen into limbo,
the willingness of the US to negotiate bilateral free trade agreements raises any numberof questions about the benefits and costs intrinsic to these accords, especially given thehigh levels of asymmetry intrinsic to every one of these FTAs now in force.
But first a word about competitive liberalization as a trade strategy proper. Here,
we draw on John Odell’s (2002: 40) definition of a trade strategy as “a set of behaviors
that are observable at least in principle, and associated with a plan to achieve some
objective through bargaining. Strategies are part of the process of negotiation, which
encompasses a sequence of actions in which parties address demands and proposals to4one another for the ostensible purposes of reaching an agreement and changing the
behavior of at least one actor.” In terms of the US, it is important to clarify the strategic
choices that have been made in terms of the number of parties the US has chosen tonegotiate with and those decisions that have been made about the makeup of countries
involved in a given set of negotiations. As our analysis will show, rather than one single
explanation for US bilateral trade policy approaches, the causal variables tend to shiftaccording to differing countries and specific time periods.
We must also keep in mind that every time the US discriminates in favor of a
trading partner, it discriminates against all the other countries that trade on an MFN basiswith the US (Cooper, 2005). For a country like the US, which has global trade interestsand occupies such an important role in the international political economy, this strategy
can be risky. Discrimination in some cases means provoking pernicious competition
among countries to be part of the lucky club of US trade partners. This is precisely what
occurred in 2004 when the US sought to negotiate an FTA with the five members of the
Andean Community. In protest of the negotiations, Venezuela withdrew its membership
altogether and petitioned for entry into MERCOSUR, while domestic politics literally
unraveled in Bolivia and Ecuador under this and other pressures; with the finalization of
the US-Peru FTA in late 2007, Peru remains the only member of this bloc to successfully
survive the competition. The US bilateral strategy has also invoked bitter reactions fromcountries such as Brazil and Argentina, which to date still have no preferential deals with
the US and tend to view the US competitive liberalization strategy with suspicion.
Going back to Viner’s classic theory on the proliferation of FTAs, at stake is theprospect of triggering greater trade diversion than creation (Viner, 1950). Given the5increase in bilateral FTAs since the beginning of the 2000s, there remains the question as
to whether the US competitive liberalization strategy will promote trade creation and amore general liberalization of the world trade system. Or, is this prompting a new
scenario of trade diversion in which the beneficiaries of FTAs will resist further
multilateral trade liberalization in order to preserve their margin of preference in the US
market (Bhagwati, 2008)? Yet, the recent literature on economic growth has declaredboth questions to be outdated. Dani Rodrik (2007) and others suggest that the yardstickfor successful trade and investment integration should instead rest on the competitive
gains that FTA signatories achieve as a result of deep liberalization of both traditional(agriculture, textiles) and modern (services, investment) sectors of the economy. The
early results on US FTAs with Chile and Singapore conform most closely with this last
insight.
While it is admittedly premature to fully resolve these debates, the accompanying
literature is worth reviewing. For example, in a recent article Evennett and Meier (2007)
make three cautionary points concerning the recent wave of US bilateral activism. The
first is the US reliance on bilateralism as a fall back strategy, as the Clinton
administration was unable to renew Trade Promotion Authority (TPA) throughout its
entire eight-year tenure (1992-2000).2 In the interim, US trading partners signed manybilateral and regional trade agreements, meaning that when the Bush administration
finally obtained TPA in 2002 there was a widespread sense that the US was trailingbehind on this dimension.

2
Formerly known as the “Fast-track” legislation, Trade Promotion Authority (or TPA) is granted to the
executive by the congress. Once a trade agreement is negotiated with a foreign partner, the executive sends
it to congress for an “up or down” vote, i.e. legislators are not given the opportunity to further amend or
modify the bill.

6Second, the rise of bilateralism must be seen in the context of the heightenedpolarization of the US congress on trade policy issues. According to Destler (2007), theconcomitant decentralization of the congressional committee system has weakened
committee chairmen and sitting members in their efforts to influence US trade policy.
Interest groups know this and have thus taken to lobbying individual legislators topropose trade measures that promote their parochial interests. In this sense, the decline ofbipartisan cooperation on trade matters has endowed key activist legislators withconsiderable influence. The third point is that the relationship between international tradeand national security became paramount in the wake of 9/11 and this was reflected in the
trade strategy of the executive branch from the beginning of the Bush administration.
However, although the conceptual connection between trade policy and national security
was strengthened post 9/11, it cannot be said that the US has pursued its trade policy
from a position of strength in the 2000s.
Despite the emergence of bilateralism as a second or even third-best strategy for
the US, former US Trade Representative Robert Zoellick argued for this option as a tradecreating and liberalizing force in 2004:
Competitive liberalization offers countries within regions a step-by-step pathway
to greater trade reforms and openness with the United States. Both the President's
Enterprise for ASEAN Initiative 12 and his plan to work toward a Middle East
Free Trade Area start by helping non-member countries to join the WTO,
strengthening both the global rules-based system and countries participating in it.
For those more advanced, we negotiate Trade and Investment Framework
Agreements (TIFAs) and Bilateral Investment Treaties (BITs). We employ thesecustomized arrangements to resolve trade and investment issues, improve
performance in areas such as protecting intellectual property rights andstrengthening customs operations…Finally, we may negotiate a wide-ranging,state-of-the-art FTA that will help establish a model for a region and incentives
for neighbors. With this graduated, stepladder approach, we can engage virtually
every country interested in working with us, and more importantly, we create a7

healthy dynamic in which countries compete to become fuller members of theworld trading system and better partners of the United States (GAO, 2004: 58).
This statement is important as it suggests that competitive liberalization is atransitional strategy and that the resulting bilateral FTAs are in principle only one stage ina broader global process. Moreover, as Evennett and Gallen (2007) point out, this policy
envisages a preparatory stage involving the negotiation and implementation of TIFAs and
BITs before negotiations over an FTA commence. TIFAs, for example, allow both the
US and its prospective FTA partners to preview those demands that will form the basis
for the actual launching of the FTA negotiations. But the big picture on the US side,according to Schott (2004, 2007), is one whereby increased bilateralism places hefty
demands for coordination between the executive agencies.
The result, Schott argues, is a "cacophony of stated policy goals” that makes
coherent trade policy formation difficult. He notes that the bargaining US trade officials
undertake on the home front is probably more difficult than negotiating abroad,especially as there is little domestic agreement on which goals should take priority. The
conflictive domestic context that surrounds competitive liberalization is exemplified by
the suspension of negotiations with Ecuador and Bolivia due to unfavorable features ofthe political system within each country---at least from the standpoint of US
policymakers---and in other instances the signing and negotiation of bilateral agreements
behind closed doors in order to isolate the participation of civil society on both sides ofthe border.
Yet the timing on the US announcement of its competitive liberalization strategy
raises questions about its transitional nature, as this coincided with the granting of WTO
membership to almost all developing countries that once were mere by-standers in the8multilateral sphere. With developing countries now comprising a majority of the WTO’s
151 members, this has created a new dynamic in which each multilateral trade round istaking longer and the chances of reaching an agreement by consensus under the single
undertaking principle have become increasingly elusive. Prior to the Uruguay Round(1986-1995) multilateral trade agreements were still tedious but were also reached more
readily, as such negotiations were largely controlled by the developed countries and theUS, EU, Japan and Canada, in particular.

When explored from this angle, the US

bilateral strategy could just as easily be interpreted as one of circumventing thisincreasingly complex multilateral terrain.
For some critics, then, the new activism on the part of the US in the bilateral
sphere generates fear that competitive liberalization may become a permanent, rather thana transitional, means of coping with this broader sharing of power amongst the WTO
membership (Cohn, 2007). This scenario lends credence to Viner’s classic framework, i.e.
the further spread of discriminatory trade deals means that trade diversion would most
likely trump trade creation.

However, others have countered against the idea thatbilateralism harms multilateralism or deters trade creation, for example, by highlighting
the fact that it was NAFTA’s ratification in 1993 that brought the EU back to thenegotiating table to finally wrap up the Uruguay Round (Wise, 2007).
But we would argue that the logic of the NAFTA case, whereby the US resorted
to bilateralism as a way to revitalize multilateral trade talks, does not hold up when
examining subsequent cases in which the US has signed bilateral trade agreements. At
least from the standpoint of the developing countries, it is hasty to assume thatbilateralism, regionalism and multilateralism can be considered as inter-changeable tools

9for achieving trade liberalization. For example, in the case of the proposed 34-member
FTAA, the simultaneous negotiation of bilateral accords between the US and Latin
American partners turned this hemispheric project into a woeful tale of cause, effect, andultimately sabotage.
Although the FTAA project was launched by the Clinton administration back in
1994, the subsequent eight-year refusal of the US congress to renew the fast-tracknegotiating authority (now called Trade Promotion Authority, or TPA)---which isnecessary for the US executive to fully honor commitments made at any trade negotiatingtable---clearly undermined the actual negotiations for an FTAA. But there were otherproblems as well. As early as 1998 at the Summit of the Americas trade ministerial
meeting in San José, Costa Rica, the FTAA countries agreed to a “single undertaking”
strategy that proved to be perhaps the Achilles Heel for the negotiations. This essentiallyextended a de facto veto to each participant, such that the pace and scope of the FTAA
negotiations could basically be set by the slowest moving reformers amongst the group(Zabludovsky and Gómez Lora, 2007).
Additional tensions obviously arose, such as the final standoff in 2003 between
the US and Brazil over the timing and extent of concessions to be made between issues
on the “old” (market access, agriculture, industrial goods) and “new” (services,
investment, intellectual property rights) trade agendas. At any rate, once the George W.
Bush administration finally obtained TPA from the congress in August 2002, the USTR
moved quickly to make up for lost time. Formerly regarded as the locomotive ofmultilateralism, the US joined the rush towards bilateral and regional trade agreements,
playing a game of catch-up with the rest of the world. The USTR at the time confirmed at10least the partial impetus for the US bilateral strategy when he lamented, “There are over
130 PTAs in the world today and the US is a party to only two of them” (Zoellick, 2001).
This statement supports the FTA diffusion idea that Katada and Solís (2008: 14)
posit in their theoretical framework, mainly that a “government’s decision to pursue thispolicy innovation is influenced by the actions of other countries and is not purely
determined by domestic factors.” Having said this, it remains to be seen whether the US
strategy fits into the emulation or the competition hypothesis, i.e. the more refined
categories put forth by Katada and Solís in their overall framework for explaining policy
diffusion. As we argue further on in the paper, the US case defies the emulation
hypothesis because most of its FTAs are dissimilar to those signed by its tradecompetitors---the absence of standard rules around labor and the environment in theselatter agreements being just one distinction. With regard to the competition hypothesis,
there is little evidence to suggest that the US bilateral strategy has emerged as a way tocounteract the encroachment of outside competitors in the region. If anything, the causal
arrow with the competition hypothesis appears to move in the opposite direction: both the
EU-Mexico and the Japan-Mexico FTAs were a reaction to the prospect of trade andinvestment diversion toward North America as a result of NAFTA (Manger, 2008), andhence, were propelled by the EU and Japan, respectively.
What we can say with some certainty is that the US sought to avoid theunfavorable “single undertaking” mode that had so burdened the FTAA while itsimultaneously worked to ramp up its leadership role in the Doha Round. Again, at leastin terms of policy discourse, US inroads on the bilateral front (depicted in Table 1) were
purportedly meant to complement ongoing negotiations at the regional and multilateral11

levels and to help pry loose the collective action bottlenecks that had threatened thetimely completion of these larger agreements. Yet, early hindsight suggests that the US
competitive liberalization approach has indeed modified the incentives for countries toparticipate in regional and multilateral trade negotiations, but it has done so in just the
opposite direction. Prior to the adoption of this new US strategy, small countries within
Latin America or elsewhere had accurately perceived that the FTAA or Doha
negotiations were the only ways to secure guaranteed access to the highly prized US
market. However, with the USTR’s 2002 policy shift, any number of small countries
successfully scrambled to negotiate bilaterally with the US (see Table 1).

Table 1: US AGREEMENTS, PREFERENTIAL AGREEMENTS AND TRADE NEGOTIATIONSRegional,bilateral andmultilateral

Negotiations under
way or beginning
shortly

Negotiations
concluded and bills
pending ratification

Signed agreements inforce

North American Free
Trade Agreement(NAFTA with Canada and
Mexico, 1994);
Caribbean Basin Trade
Partnership Act (2000);
Andean Trade Promotion
and Drug Eradication
Act (ATPDEA, 2002)
Free Trade Area of theColombia (2006); Panama
Chile-US FTA (2004);
Western Hemisphere
Americas (FTAA(2006)
Central America–
stalemate);
Dominican Republic –Ecuador (suspended)
US (CAFTA-DR) (USFTA completed with El
Salvador, Guatemala,Honduras, and Nicaragua,
2006; with Costa Rica,
2007); Peru (2007)
South African Customs
Israel (1985); Jordan
Africa and the Middle(2001); Bahrain (2006);
Union; United Arab
East
Emirates
Morocco (2006); Oman
(2006)
Malaysia; Thailand
Republic of Korea (2007)
Australia, (2005);
Asia and Oceania
Singapore (2004)
Source: Authors’ update based on data from the Economic Commission for Latin America and the Caribbean(ECLAC) and the office of the United States Trade Representative.
Multilateral

WTO (Doha Round)12

At least for the time being, just the fact that the US has signaled its willingness tomove ahead on multiple fronts seems to have dissipated the will for smaller and poorer
countries to pay the disproportionately higher costs of negotiating more lengthy andcumbersome trade agreements within these larger fora. And now, with the collapse ofnegotiations at Doha and within the FTAA, as well as the low probability of renewed US
commitment on either front until after the inauguration of a new presidential
administration in January 2009, there is growing momentum in Washington toward theconsolidation of some of these bilateral deals in the Americas into a “seamless” regional
bloc. Although Zoellick has subsequently taken over as president of the World Bank, theformer USTR articulated this very proposal in a Wall Street Journal opinion piece inJanuary 2007:
This year President Bush and the Democratic-led Congress should launch a new
Association of American Free Trade Agreements (AAFTA). The AAFTA could
shape the future of the Western Hemisphere, while offering a new foreign andeconomic policy design that combines trade, open societies, development anddemocracy. In concert with successful immigration reform, the AAFTA would
signal to the Americas that, despite the trials of war and Asia's rising economic
influence, U.S. global strategy must have a hemispheric foundation….George W.
Bush enacted FTAs with Chile, the five states of Central America and theDominican Republic. He also completed FTAs with Colombia, Peru and Panama.
If Congress passes these agreements, the U.S. will finally have an unbroken lineof free trade partners stretching from Alaska to the tip of South America. Not
counting the U.S., this free trade assembly would comprise two-thirds of both the
population and GDP of the Americas.
The normal course for enacting these FTA agreements encompasses six different
steps that range from the formal initiation of negotiations between the US and a given
country, to the notification by the US executive to congress that an agreement has been
completed, to the ratification of the agreement by the US congress. Then follows a13detailed monitoring by the USTR to ensure that the laws of the signature country havebeen amended to comply with the terms of the FTA. Related to this process, is theaforementioned decline of bipartisan cooperation on trade matters during the 1990s(Destler, 2007), and hence the narrowing margin by which new bilateral deals have been
ratified.
According to Evennett and Meier (2007), this same inter-party bickering accounts
in part for the growing number of behind-the-border issues (e.g. labor rules andenvironmental standards) that came to be included in the trade negotiating objectives
congress established for the executive branch in the 1990s. In short, while touted as
major victories when passed, the triumph for US legislators lies less in the realm ofsignificant trade policy advances and more in their ability to momentarily overcome
internal congressional strife. By far the most substantive issues taken up by the US
congress on this front have been the matter of how labor and environmental provisions
should best be incorporated into the new bilateral trade agreements that have been
negotiated.
A consensus was reached that the legislation and practices of partner countries
must comply with the obligations set out in Chapter I of the International Labor
Organization (ILO) Declaration on the Fundamental Principles and Rights at Work,
adopted in 1998. With regard to the environment, new bilateral partners in Latin America
are obliged to sign seven agreements on the environment and to accede to existing
multilateral agreements (ECLAC, 2007) in this realm. The Peruvian government, facedwith bitter opposition from the US congress due to its weak domestic environmental

14

regime, went so far as to create a whole new Ministry of the Environment in order to win
the necessary votes in the US congress for the approval of the US-Peru FTA in 2007.3
There remains the question as to whether bilateral FTAs create momentum for
wider regional and multilateral trade agreements. After all, much of the US trade strategy
for Latin America is now predicated on this assumption. Yet some scholars haveexpressed doubts, as the case for US competitive liberalization as an impediment to thelarger agreements seems more compelling. Destler (2005), one such skeptic, argues that
Venezuela’s swapping of membership in the Andean Community for membership in theSouthern Cone Common Market (MERCOSUR) confirms that the ground for the FTAA
has been hollowed out. In sum, to date it is difficult to see how liberalization at thebilateral level within the Western Hemisphere has inspired countries to negotiate trade
agreements at the regional (FTAA) or multilateral (Doha) levels.

2. Bilateralism in Motion
US trade policy first departed from its traditional focus on multilateralism and the
GATT with the negotiation of bilateral FTAs with Israel in 1985 and Canada in 1988. At
the time, both agreements were labeled as special cases: Israel as an isolated strategic ally
with a strong domestic political lobby, and Canada as a bordering state with close ties tothe US economy through intra-industry trade and investment (Chan, 2005). With thesigning of NAFTA in 1992 and the inclusion of Mexico in the agreement, arguments
based on geographical proximity as a valid justification for bilateral negotiations were
further bolstered. The finalization of the Uruguay round in 1994 and the subsequent
3

Authors’ interview with Juan Miguel Cayo, Special Counselor to the Office of the Peruvian Country
Director, Inter-American Development Bank, May 23, 2008, Washington, DC.

15creation of the WTO suggested that the US was returning to the multilateral fold. Yet,the bilateral treaty signed with Canada had provoked a rush of foreign proposals in thelate 1980s for the negotiation of similar bilateral trade agreements between the US andSouth Korea, Taiwan, ASEAN and Australia, although no negotiations were started.
Inasimilar

vein,

in

the

Latin

American region the advent of the NAFTA negotiations had prompted the Presidents of
Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua to notify the Clinton
administration in 1992 of their interest in negotiating an agreement of this nature. Given
Central America’s export similarity with a range of low value-added goods that Mexico
ships to the US market, the prospect of heightened trade diversion prompted thesecountries to act. In particular, Central America needed to improve its access to the US
market in those goods not covered under the GATT/WTO General System of Preferences(GSP) or the Caribbean Basin Trade Partnership Act of 2000, but which faced toughcompetition from Mexico under NAFTA. The Central American countries hoped toachieve market access parity within NAFTA, but the US rejected this proposal andconceded to the granting of preferences solely on a discretional basis.
In 1994 the US joined the forum on Asia Pacific Economic Cooperation (APEC)
and that same year the Clinton administration launched negotiations with thirty-threeother Western Hemisphere countries to complete the FTAA by 2005. It was envisionedthat the FTAA would incorporate the previous bilateral FTAs negotiated by the US with
Latin American countries and that the final sum would be greater than the individual
parts, i.e. the FTAA would embrace WTO-plus rules and norms that surpassed theachievements of all of the pre-existing sub-regional agreements in the Western

16

Hemisphere. Hence, US trade policy still voiced strong support for multilateralism, but
was now willing to venture into regional agreements with strategic ties—the explicit
justification being that agreements negotiated in tandem with multilateral ones would
favor the completion of the latter.
Unfortunately, neither regionalism nor multilateralism has yet to pay off. Whilebilateralism stood out as the obvious third-best strategy, this was contained by thesystematic veto of the fast-track negotiating legislation by the US congress throughout
the 1990s. However, with the passage of the “Bipartisan Trade Promotion Authority Act
of 2002” under the Bush administration, the Bush trade policy team was given the green
light to seek out bilateral deals in multiple arenas. As we explained at the outset of thispaper, these new bilateral initiatives have sought to spur ‘‘competitive liberalization’’ inthe region so as to accelerate the pace of trade reform.
To summarize, since the congressional approval of TPA in 2002 the US has
pursued a variety of national interests that former aide to the Clinton Administration,
Richard Feinberg (2003), categorizes in the following way:
• Asymmetric reciprocity to open markets that take into account the interests of
US traders and investors;• Competitive liberalization as a means to establish precedents for wider trade
agreements and to soften opposition to them;• Using trade negotiations to lock in domestic market-oriented reforms;• Strengthening strategic partnerships.
With TPA approval in hand the USTR pursued some of the postponed bilateral
trade agreements that were shelved during the Clinton administration, the Chilean FTA

17being a prime example. Having been invited to negotiate its entry into NAFTA in 1994, it
would take a decade for Chile to complete a bilateral FTA with the US. At any rate, there
are two divergent views with regard to this new trend of US bilateralism. According to
Tussie and Lengyel (2006), this increased reliance on bilateralism may provide thenecessary structural foundation for regionalism to eventually flourish. This is based on
the notion that bilateralism could gradually evolve into plurilateral regional-levelagreements that exhibit new forms of cooperation. This would be most expected where
there is a dense and overlapping concentration of bilateral agreements, as is currently
happening in parts of Latin America and in Asia.
Bhagwati (2008), who has adamantly opposed the US policy of “competitive
liberalization,” represents the opposite position. In line with his long-standing criticism ofpreferential trade agreements, Bhagwati testified before the US congress in April 2002
that the "chief argument" against current US trade policy is that bilateral FTAs are being
used to establish templates that include non-market access provisions. He argues that thisbilateral policy amounts to a strategy of "divide and rule," i.e. the use of bilateral trade
agreements to undermine (essentially developing country) opposition to the negotiation
over "non-trade" issues at the WTO, which he believes is a mistake. Bhagwati points tothe provisions on capital controls in the US FTAs with Singapore and Chile as examplesof this tactic, along with the incorporation of intellectual property rights and labor andenvironmental provisions in other free trade agreements such as the US-Peru FTA.
Alongside these contrasting views on the US competitive liberalization strategy
are those such as Zabludovsky and Gómez Lora (2007), who argue that it was the US
patchwork of bilateral deals with “like-minded trading partners” in the 2000s that18

ultimately derailed the FTAA negotiations. After all, why should the small countries ofCentral America and others like Colombia, Panama, and Peru cast their fate with the(now ephemeral) FTAA or even the multilateral negotiations when the US issimultaneously dangling the carrot of more immediate market access via a bilateraltreaty? Once in place this emerging network will firmly re-establish the deeper
consolidation of the US as the trade and investment hub of the hemisphere, and therelegation of other powerful countries in the hemisphere as spokes, albeit important ones.
This, presumably, is one good reason for Canadian Prime Minister Stephen
Harper’s recent policy shift toward “hemispheric re-engagement,” including the pursuitof stronger trade and investment ties with Canada’s own “like-minded” Latin American
partners (Wise, 2008). The other pole of resistance is MERCOSUR, where Brazil,
Argentina, and the newly admitted Venezuela have used their own sub-regional base toresist what they have coined the “US hegemonic trade strategy.”
A second hemispheric cleavage has emerged between those countries such as theUS, Mexico, and the entire Central American bloc, who are struggling against fierce
Chinese competition under conditions of high export similarity, and countries like Brazil,
Chile, and Argentina with rich natural resources that have carved out a more
complementary pattern of economic exchange with China based on comparativeadvantage. Most telling is the 2005 launching of a bilateral FTA between Chile andChina based on China’s demand for Chile’s raw material exports (copper and wood pulp)
and Chile’s importing of lower value-added industrial goods from China (Wise andQuiliconi, 2007). Having finally secured a bilateral FTA with the US in June 2003, Chileis the one case that is playing both sides of this cleavage to its advantage. Mexico,19

although disadvantaged vis-à-vis China in the US market, has actively signed FTAs withvarious countries and thus become its own regional hub for trade and investment in theWestern Hemisphere. For the other small Latin American states now partneringbilaterally with the US, this option remains remote.

3. The Competitive Dynamic in Latin America and Asia
In line with the majority view stated in the rich literature on this subject, ouranalysis thus far points to both internal and external factors in explaining the remarkable
US shift from staunchly opposing the FTA option over the post-World War II period to
its warm embrace beginning in the 1980s. In view of the explanatory framework set forthby Katada and Solís (2008), we see the US as the trendsetter in the generation of bilateral
FTAs that were negotiated in the 1980s and thus a main independent variable for the
diffusion of this specific trade strategy beginning in the 1990s. This is especially so for
the Western Hemisphere, where Mexico and Chile have followed the US strategy with
the negotiation of a plethora of bilateral FTAs in the post-NAFTA era.
Although adverse domestic politics prevented the US from further pursuingbilateral treaties in the 1990s, with the granting of TPA in 2002 the USTR revived thisstrategy with a vengeance. Interestingly, while former USTR Zoellick coined the present
strategy as one of “competitive liberalization,” we interpret this differently from thecompetition variable defined by Katada and Solís. Rather, in the US case, competitive
liberalization is much less a matter of countering trade competition in third country
markets and more an invitation for current, albeit much smaller, US trade partners tojointly embrace deeper competition via the negotiation of a bilateral FTA with the US.

20

As we discuss in this section, although a driver in the diffusion of bilateral policy
approaches, the US strategy itself is motivated by quite different domestic andinternational concerns at various points over the 1984-2008 time period.
Beginning with the US bilateral FTAs negotiated with Israel (1985) and Canada(1988), we see the null hypothesis developed by Katada and Solís (2008) as the morecompelling explanation for these two agreements. On the international side, the US faced
serious concerns on both the economic and security fronts. In the security arena, thecontinued turmoil in the Middle East and a strong pro-Israel US lobby facilitated thenegotiation of the US-Israel FTA.

In essence, this agreement enabled the Reagan

administration to affirm its support for Israel and the FTA was quickly concluded in 1984.
As the US congress was enacting new trade legislation at this time, then USTR William
Brock successfully lobbied for the right to negotiate bilateral agreements through fasttrack authority beyond the Israel agreement. This, in turn, opened the door for thenegotiation of the bilateral agreement with Canada.
The US-Canada FTA is perhaps best understood from the standpoint of thegrowing uncertainties that roiled global markets in the 1980s and the way these affected
the US and, inadvertently, Canada. The international economic position of the US was
threatened by stiff trade competition from Japan and the emergence of mammoth monthly
commercial deficits; internally, the supply-side tax cuts implemented by the Reagan teamand the simultaneous spending on the largest peace-time arms buildup in US history had
resulted in a massive fiscal deficit. As the US fell back into a net debtor status for the
first time in the twentieth century the mood on Capitol Hill turned decidedly protectionist.

21

It was Canada, faced with its own economic woes and rising levels of US importprotection in the 1980s, which petitioned the USTR to launch negotiations for a bilateral
FTA. Canada’s move was a defensive one and spurred less by concern over the prospectof facing outside competition in the US market and more by fears of being shut out of the
US market altogether. As Table 2 shows, Canada’s trade and investment ties with the US
are the strongest and they continue to tower over those of all other partners with which
the US has signed a bilateral FTA.
The US FTAs with Israel and Canada readily confirm the null hypothesis within
the Katada and Solís (2008) framework, as trade policymakers regarded both agreements
as anomalies for the most part---minor steps along the path to the next round of
multilateral negotiations. Thus, with the launching of the Uruguay round in 1986 it cameas somewhat of a surprise when Mexican President Carlos Salinas de Gortari explicitly
requested the negotiation of an additional bilateral FTA with the US in 1990. It was withconsiderable difficulty that former President George H.W. Bush obtained the necessary
fast-track authority to launch negotiations with Canada and Mexico for the negotiation of
NAFTA, Mexico’s developing country status constituting the main objection on the partof US and Canadian constituencies.
Yet, the NAFTA agreement moved more quickly than the Uruguay round, as all
three legislatures in North America had confirmed it by late 1993. Like Canada, Mexico
had acted defensively to secure its own position in the US market, but also as a way oflocking in its recently implemented market reform program (Pastor and Wise, 1994).
The tradeoff was that both partners agreed to the incorporation of “GATT-plus” features22within NAFTA, i.e. rules surrounding investment, services, dispute settlement and IPRs
that top the list of the “new trade agenda.”
Returning to the Katada and Solís (2008) framework, it could be argued that the
GATT-plus features of NAFTA triggered a process of both emulation and competition:emulation in the sense that key actors in the Uruguay round negotiations were now keen
to close the deal and to achieve similar progress on the GATT-plus rules embodied in
NAFTA; and competition in that European and Asian (especially Japanese) investors andexporters now faced the prospect of shrinking demand for their goods in the US and
Mexican markets. The emulation variable prompted a long overdue breakthrough at themultilateral level in the design of rules to cover those previously mentioned items on the
new trade agenda, including the completion of the Uruguay round in 1994 and thecreation of the World Trade Organization (WTO) in 1995; the competition variable
unleashed a frenzy of new bilateral FTAs, led by countries in the Western Hemisphere.
When the US joined this fray in the early 2000s, the GATT/WTO-plus NAFTA template
re-emerged as the main reference point for the negotiation of these bilateral FTAs (seeTable 2).
Apart from tackling tariff and non-tariff barriers, as well as incorporating
GATT/WTO-plus regulations in terms of investment, services and IPRs, these more
recent bilateral FTAs signed by the US have two main features. First, as Table 2 shows,the latest round of FTAs has been highly asymmetric and, going all the way back to the
NAFTA accord, they have included labor and environmental standards. According to
Schott (2006), the current US criteria for selecting bilateral partners depend on four main
factors. First, is whether a given FTA will meet with broad support amongst members of23

congress and their private sector constituents. Second, is if the agreement promotes US
trade and investment interests by improving market access, leveling the playing field for
US firms, workers and farmers and by forging ties with countries most likely to support
US objectives at the WTO. Third, the US considers if the prospective partner is ready inthe sense that policymakers are willing to undergo the kinds of regulatory and tradereforms needed to comply with US requirements. Finally, the US analyzes if the FTA
promotes its foreign policy interests, which is a concrete manifestation of the carrot-andstick approach to diplomacy.
When comparing US bilateral trade agreements with those that the EU has signed
a main difference is that the EU FTAs invariably involve some form of adjustment
assistance or economic cooperation funds, particularly when this involves asymmetricpartners. In contrast, the US has adamantly resisted the inclusion of such assistance in its
bilateral agreements with small developing countries (Wise, 2007). Otherwise, in mostcases both the EU and the US pursue similar regulatory policies in the areas ofinvestment, IPRs, and services. While the US has systematically avoided any special anddifferential treatment that takes into account differing levels of development, it hasoffered capacity building support for trade negotiations in some of its Latin Americanagreements. This entails technical support and training for the negotiation and proper
implementation of trade agreements.
Table 2 summarizes the trade and investment ties that underpin the agreementsthat the US has signed with Latin American and Asian partners, the bulk of which werelaunched in the past four years. As can be appreciated in the table, the NAFTA partners
are by far the most important for the US in terms of trade and FDI volume. According to24

the USTR (2007), from 1993 to 2006 trade among the NAFTA nations climbed 198
percent, from $297 billion to $883 billion. Moreover, US exports to Canada and Mexico
accounted for 35 percent of total US exports in 2006. In the case of NAFTA it is clearthat the main reasons behind the agreement are economic, as both agreements (CanadaUS and NAFTA) were first requested, not by the US, but by Canada and Mexico.

Table 2: The Volume of Trade and Investment Associated with US FTAs
Partners4
MexicoYear signed

Trade volume in 2007
% over the total 5

FDI volume in 2006
% over the total6

11.146%

1.944%

18.019%8.042%

0.556%

0.578%

0.140%

0.027%

0.228%

N/A

0.269%

0.018%

0.080%

0.002%

0.274%

0.118%

0.331%

0.061%

0.299%

0.485%

1994

Canada

1994

Chile

2004

El Salvador

2006

Guatemala2006

Honduras

2006

Nicaragua

2006

Costa Rica

2006

Dominican
Republic

2006

Peru

2007

Issue scope7
Investment, services,
environment, labor
Investment, services,
environment, labor
Investment, services,
environment, labor
Investment, services, labor,
environment, trade capacity
building
Investment, services, labor,
environment, trade capacity
building
Investment, services, labor,
environment, trade capacity
building
Investment, services, labor,
environment, trade capacity
building
Investment, services, labor,
environment, trade capacity
building
Investment, services, labor,
environment, trade capacity
building
Investment, services, labor,
environment, trade capacity
building

4

The table covers all of the agreements in the Asian and Latin American regions that are relevant for thisproject.
5
http://tse.export.gov/MapFrameset.aspx?MapPage=NTDMapDisplay.aspx&UniqueURL=pbstck551vkuf2
mr2kzw0q55-2008-5-10-17-37-33, .
6
http://www.bea.gov/international/ii_web/timeseries7-2.cfm. Bureau of Economic Analysis, US
Department of Commerce, accessed 11 May 2008.
7
USTR webpage.

25

Australia
Singapore

2004
0.893%

2.608%

1.434%

4.410%

2003

Investment, services, labor,
environment
Investment, services, labor,
environment

Table 2 also shows that the trade and FDI flows are not as significant for the US
in the other cases. Thus, in the post-NAFTA era US motives around bilateral trade deals
appear to be more political and legal in nature and geared toward securing certain
services and investment regulations related to specific US economic interests. We would
also argue that the US FTAs signed with the Central American and Andean countries
represent the US assessment that if the new trade issues cannot be agreed upon any timesoon within the multilateral arena, then the US will continue to pursue these issues on abilateral basis.

4. Competition and Emulation in the 2000s
Latin America
In the previous section we argued that the origins of the NAFTA accord defied thepolicy diffusion explanation, first because it was launched at a time when the US had yet
to declare bilateralism as a strategy proper; and second, because Canada and Mexico
were the demandeurs for the negotiation of the US-Canada agreement and the NAFTA
accord, respectively. In examining the US bilateral accords that followed in the 2000s,
the US continues to lead the way in the diffusion of WTO-plus FTAs. However, with the
exception of Chile, the variables of competition and emulation also continue as reactions
to the US bilateral strategy, and the US definition of “competition” remains that ofjointly embracing a competitive trade strategy with FTA partners versus US concerns
about third party encroachment in the markets of its designated FTA partners.

26

As Table 2 shows, the US-Chile FTA was the first bilateral agreement completed
by the US in the 2000s. This was both a case of unfinished business from the 1990s anda reflection of Chile’s efforts to promote itself as an investment and services hub in SouthAmerierca. By 1996, when it had become clear that the US would not be able to makegood on its earlier invitation to Chile to become NAFTA’s fourth partner, Mexico andCanada negotiated separate FTAs with Chile based on the NAFTA template. At the sametime, Chile moved assertively in the negotiation of FTAs with regional and extra-regional
partners, and it participated actively in the FTAA initiative.
The only US sector to show interest and pressure for the US-Chile FTA was theservices sector. However, as EU business interests began to lobby for the negotiation ofa EU-Chile FTA, the interests of US investors in the services sector were quickly
rekindled (Manger, 2008). Bilateral negotiations between the US and Chile for a FTA
began almost at the same time as those with the EU and Chile, and the US-Chile FTA
was finally completed in December 2002. The almost simultaneous finalization of the
EU-Chile and the US-Chile FTAs lends support to the competition variable within the
Katada and Solís framework, as US investors sought to defend their stake---no matter
how small---in the Chilean market.
The remaining US-Latin American FTAs that we discuss here---CAFTA-DR,
US-Peru, and US-Colombia---represent a combination of hegemonic diffusion on the USside and reactive competition/emulation on the part of the countries involved. In all ofthese remaining cases, not only is there little threat to the US toehold in these markets,
total US trade and investment ties themselves are rather meager. But the asymmetries are
such that all of the participating countries are looking to defend levels of market access27

that had been granted at some earlier point by the US congress and for reasons related
more to security than to US foreign economic policy.
Such were the roots of both the 1984 Caribbean Basin Economic Recovery
Expansion Act (CBERA) and the subsequent Andean Trade Preference Act (ATPA), bills
passed by congress for the explicit purposes of fighting “Communist” guerrillas in thecase of the former and eradicating rampant drug trafficking in the case of the latter.
Although in the post-Cold War era CBERA was succeeded by the Caribbean Basin Trade
Partnership Act of 2000 and ATPA by the Andean Trade Promotion and Drug
Eradication Act (ATPDEA) of 2002, the fact is that both the Central American and theAndean countries stand to lose these benefits at any time should the unpredictable windsof the US congress shift against them.
At the time of negotiating and signing CAFTA-DR, this FTA was approached by
the US as a low risk and fairly simple strategy for catalyzing the lagging FTAA
negotiations. The trade and investment stakes for the US were obviously low, as Table 2
shows, however the negotiations were deemed to be far simpler with CAFTA-DR thanthose underway within the FTAA. The recently concluded US negotiations with Chile
meant that the bilateral FTA template was in place, and CAFTA-DR entailed just fivenegotiating groups compared to seventeen for Chile. For the US, then, the CAFTA-DR
agreement was embraced for its demonstration effect and its use in signaling US
commitment to the completion of the FTAA. As Zoellick pointed out (USTR, 2003):"Adding the Dominican Republic as an FTA partner will
promote economic growth and further integration in the Caribbean
by building on a successful agreement with Central America and bylending further momentum to concluding the Free Trade Area of theAmericas (FTAA) negotiations by January 2005."

28

With the collapse of hemispheric and multilateral negotiations, CAFTA-DR
quickly became a test case for the US competitive liberalization strategy. A main legacyof the 1984 CBERA was that apparel had “become the dominant export good for all
countries except Costa Rica. The United States encouraged this type of trade when it
included the Central American countries as beneficiaries under the Caribbean Basin
Economic Recovery Expansion Act…” (Hornbeck, 2003:14). The content of theagreement thus focused on investment and market access in textiles and garments rather
than trade in a range of goods. Given the fierce levels of import competition that the US
apparel industry has faced since China’s 2001 entry into the WTO, coupled with thephasing out of the GATT’s Multi-fiber Agreement in 2005, those in support of CAFTADR were hard-pressed to convince a majority of legislators on Capitol Hill that CAFTADR would, in fact, benefit US textile and garment producers.
First, the pro-CAFTA-DR coalition emphasized the potential for the agreement tofortify cross-border production networks between the US and Central American apparelindustries, such that greater market access would enable both groups of producers tostrengthen ties and link efforts to combat the steady flow of Chinese apparel exports(House Ways and Means Committee, 2003: 33). Second, the agreement’s supporters
presented it as an opportune way for US companies to equalize not just their tradepreferences, but also rules around investment, services, and IPRs. Finally, although theincorporation of labor standards and rules around environmental protection into the USChile FTA rendered this a fait accompli for CAFTA-DR, lobbyists readily “conceded” onthese points while courting the opposition.

29

The economic stakes for the US may have been small, but CAFTA's politicalsymbolism loomed large given that congress had “not rejected a major trade pact in morethan four decades, and CAFTA's defeat could have undermined Bush's efforts toencourage the spread of democracy, to combat terrorism, and to negotiate bigger
hemispheric and global trade agreements” (Vieth, 2005). The drama that ensued on
Capitol Hill regarding the passage of CAFTA-DR (217 to 215 in the Democraticallycontrolled House of Representatives and 54 to 45 in the Senate) confirmed thathenceforth the negotiation of bilateral FTAs with developing countries constituted
anything but a low risk and simple strategy, and the subsequent negotiation of the USPeru FTA immediately bore this out. In hindsight, the impetus for the CAFTA-DR FTA
was the further diffusion of the competitive liberalization strategy on the part of the US,
while the reaction of the CAFTA-DR countries closely fits the variables of competitionand emulation as defined by Katada and Solís (2008).
The lead-up to the US-Peru FTA is similar to that of CAFTA-DR, as are thecompetition and emulation variables that induced Peru’s pursuit of the agreement.
Initially, the USTR envisioned the completion of a US-Andean FTA as yet another step
toward the conclusion of the FTAA. And, because the Andean Community members
enjoyed pre-existing preferences to varying degrees in the US market under the ATPDEA,
at least half of the FTA template was already in place. However, although negotiations
with Bolivia, Ecuador, Colombia, and Peru began in May 2004, US talks with Bolivia
and Ecuador quickly reached a deadlock; as it became clear that Colombia’s participationin the FTA would raise any number of hackles concerning labor standards and human30rights abuses on Capitol Hill, Peru emerged as the most viable candidate for negotiating abilateral FTA within the context of the US competition liberalization strategy.
As Table 2 shows, the flow of US FDI to Peru is small, but still nearly double thepercent represented by US-Peru trade. On the trade side, 98 percent of US imports from
Peru entered duty-free (under MFN tariff rates, various preference programs, including
the ATPDEA, and the General System of Preferences) prior to the 2007 congressional
approval of the US-Peru FTA, suggesting that Peru is yet another minor venue for US
promotion of WTO-plus rules around investment, services, and IPRs. As with the USChile and CAFTA-DR agreements, Peruvian policymakers conceded to US demands forthe harmonization of regulatory norms and to broad commercial policy reforms thatcomplied with US standards, and this obviously included the adoption of the same laborand environmental stipulations that were embodied in these other FTAs. As with theseother agreements, the US-Peru FTA further diffuses the US competitive liberalization
strategy in the 2000s.
As for the pending US FTAs with Colombia, Panama, and South Korea, a main
trade policy priority for the outgoing Bush Administration is to secure congressional
ratification of the US-Colombia FTA. Although the US-Colombia trade and investment
links are no more compelling than those of the US with Chile, CAFTA-DR or Peru, thisagreement continues to faces significant opposition from the Democratic congressional
majority based on projected US job losses and human and labor rights infractions in
Colombia. Yet, despite the willingness of the Colombian negotiators to raise standards
across the board, not to mention the $$billions in US military and economic aid dispersedto the Colombian government since the late 1990s under the banner of “Plan Colombia,”31

the powers that be on Capitol Hill have been unable or unwilling to embrace the USColombia FTA as a logical extension of ongoing US foreign policy toward this drug andguerrilla-plagued country---a foreign policy approach that has held true for Democraticand Republican administrations alike for at least a decade.
The recent Democratic Party presidential debates have further clouded theprospects for passage, as the candidates called repeatedly for "fixes" to the existing US
FTAs before adopting new ones yet no details on the what actually needs to be done
(Markheim, 2008). As the bill for the US-Colombia FTA now wends its way throughcongress, the debate has fallen prey to Jeff Schott’s (2004) "cacophony of stated policy
goals.” There is bipartisan recognition that rejection of the bill would constitute a major
foreign policy blunder from the standpoint of US-Colombian relations and, in turn, US
security concerns. The immediate question, to which there is no easy answer: can the
US-Colombia FTA survive the election year partisan bickering in which it is currently
ensconced? Given the strong uncertainties that surround the future direction of US trade
policy under the next presidential administration, some in Washington are holding out
hope that the US-Colombia deal can be brokered during the lull between the November
2008 election and the January 2009 inauguration of a new executive and congress.

Asia
The agreements between US-Singapore and US-Australia were signed in May
2003 and May 2004, respectively. Both represent a competitive strategy on the part of
the US, one that is driven by the quest to secure more liberal rules on a number of issues
that define the new trade agenda and by US efforts to expand market share in countries32

that are negotiating similar market access arrangements with China. For example, China
negotiated a framework agreement with Australia in 2003 and the two countries are
currently negotiating an FTA. Additionally, the ASEAN bloc, which includes Singapore
as a member, is currently working towards the negotiation of an FTA with China. In
contrast with the very small stakes attached to the negotiation of bilateral US FTAs in theWestern Hemisphere, these two Asian agreements are both materially and symbolicallycrucial to US efforts to compete with China on its own regional turf.
In contrast with the majority of agreements reviewed in the previous section, theUS foray into negotiating Asian FTAs is underpinned by considerably stronger flows of
US FDI. As Table 2 shows, Singapore’s share of US FDI ranks second only to Canada’sand Australia ranks third on this indicator. Moreover, the baseline for both countries atthe outset of the negotiations was that of economic openness and market orientation. The
asymmetries between the US and each of these FTA partners are obviously there, but thepre-existing bias toward competitive liberalization on both sides of the negotiating tablerendered these deals easier to reach, and certainly more obtainable that the US FTA with
Korea.
In the case of Singapore, Dent (2003) argues that many key factors, including theabsence of sensitive issues or a large agricultural sector, allowed for a smooth set ofnegotiations with the US. For both sides the services sector topped the agenda and thefinal agreement basically reflected a sophisticated trade relationship between two hightechnology parties (Murphy, 2004).

For the USTR (2002), the highlights of the US-

Singapore FTA are: new service and investment opportunities for US Banks; expanded
market access for US insurance companies; a more open and competitive33

telecommunications market; and the streamlining of customs procedures. From
Singapore’s standpoint, although the FTA may have been a reaction to the US
competitive liberalization strategy, the sophisticated content of the agreement confirmsthat policymakers there were seeking to set a new pace for WTO-plus achievements
rather than emulating the numerous but less penetrating FTAs that have emerged
worldwide since the 1990s.
On the US-Australia FTA, the main interests of the US focused on trade-related
investment rather than services. From the start, the sectors covered in this bilateralrelationship were more complicated, as the US-Australia trade relationship is based
mainly on a pattern of comparative advantage that mirrors the China-Chile FTA. Like
China, the US exports higher value-added manufactured goods to Australia (e.g., aircraft
and parts, road vehicles, and specialized machinery); like Chile, Australia mostly exports
primary goods (e.g., meat, beverages, and dairy products) to the US market.
For Australia, the main irritants included US restrictions on beef and dairy
imports; for the US the strains centered on Australia’s local content requirements in
television programming, sanitary and phytosanitary (SPS) measures, state-sanctioned
monopolies in exports of wheat and other grains, and its screening of foreign investments.
On some talking points, such as US restrictions on beef and dairy imports from Australia
and on Australia’s investment screening, the two sides agreed to loosen existing
restrictions.

On others, such as Australia’s SPS measures and state-sanctioned

monopolies, they agreed to establish mechanisms for further discussion. However, noagreement was reached in the most contentious areas, such as US import controls on
sugar.

34

Stoler (2004) argues that the US sought an FTA with Australia for the following
reasons: to increase US FDI in Australia; to encourage the greater integration of businesspractices in the two markets; to foster competitive liberalization through its
demonstration effects in the WTO and other trade fora; and to further solidify an alreadystrong relationship between the two countries.

Apart from the competitive impetus

engendered by China’s negotiation of an FTA with Australia, the US-Australia FTA waspolitically motivated to the extent that it enabled the US government to showcase its
strong bilateral alliance with a main actor in Pacific Asia, a country that is key to thepromotion of stability and prosperity in this region. For Australia’s part, the conclusionof the US-Singapore FTA a year earlier surely prompted a combined reaction ofemulation and competition, an opportunity for Australia to fast-track its goals ofachieving greater access to the US market after the long hiatus on US trade negotiations
over the preceding decade.

Conclusions
In this paper we sought to explain the emergence of the US bilateral trade strategy
by analyzing its underpinnings across two specific time periods (1984-1992 and 20022008) and within two separate geographic regions (Latin America and Pacific Asia). At
the same time, we lodged our analysis in the theoretical framework designed for thisproject by Katada and Solís (2008: 14). In doing so, we probed the extent to which the
US bilateral trade strategy was rooted in domestic pressures and demands or whether thispolicy innovation was influenced by the actions of other countries. Within the broader
question of policy diffusion we also explored those political, economic, and legal

35

variables that compelled both the US and its various bilateral trade partners to enter into
FTAs. Here, we argued that the US has clearly been a driver in the diffusion of bilateralpolicy approaches, even if the US strategy itself is motivated by quite different domestic
and international variables at shifting points over the 1984-2008 time period.
The impetus for those US bilateral FTAs signed between 1984-1992 (Israel,
Canada, and NAFTA) conformed most closely with the null hypothesis, which meansthat the decision to pursue these agreements was not shaped by the prior actions of othercountries. Rather, the US-Israel FTA emerged as an expeditious way for the US topromote its political and security goals in the Middle East. In the cases of the US-Canada
FTA and NAFTA, Canada and Mexico were the initiators, respectively, as each struggled
economically and fought to preserve market access in the face of rising US protectionism
and global financial instability. A defining feature of this period is that the US resort tobilateral approaches was convincingly articulated as a parallel strategy, one meant tocomplement the US commitment to completing ongoing multilateral trade negotiations at
the Uruguay round.
Ironically, although the Clinton administration achieved this multilateral goal in
1994, contentious domestic politics and a hostile congress worked to deter the completionof further US trade agreements until the signing of the US-Singapore FTA in 2003. In theinterim, more than 250 FTAs were negotiated worldwide, many of them involving somecombination of developed and developing country membership.

Although the US

congress basically benched the US executive for a full decade on the trade policy front,
we would argue that the initial US move to include Mexico in the NAFTA negotiations
was the trigger for the wave of asymmetric FTAs that quickly followed. In this respect,36

the US was the diffuser of the bilateral FTA strategy and those countries that followed in
its footsteps emulated this policy as a way of similarly locking in access to key export
markets.
It took the US executive eight years to win congressional approval for the formal
negotiation of further FTAs.

However, with the passage of the Trade Promotion

Authority legislation in 2002, the office of the US Trade Representative launched its
strategy of competitive liberalization; the USTR has subsequently finalized more than adozen FTAs, all of which cover market access, investment, services, labor and theenvironment. Despite the lapse in negotiating bilateral FTAs in the 1990s, we would
argue that the US competitive liberalization strategy still fits the policy diffusion mold inthat the US FTA template continues to push harder than most to achieve WTO-plus
outcomes.
Whereas the motives of US FTA partners in the 2000s seem to be based on somecombination of emulation and competition to retain market share in key US sectors, wedefined the US view of competition in a more literal sense. With the exception of the US
FTAs negotiated with Singapore, Australia, and Chile, the US competitive strategy has
been geared more toward liberalizing jointly to achieve higher levels of efficiency andproductivity, and less on the encroachment by third parties into a given US export market.
However, our review of the accompanying debates over the longer-run implications of
the US competitive liberalization strategy cast some doubt on this rosy scenario of tradecreation and increasing global prosperity. On this count, we made three main points.
First, we clarified the differences between bilateral, regional, and multilateral37liberalization, and highlighted the ways in which bilateralism is most biased toward
discrimination and trade diversion.
Second, we noted the tendency thus far for the US to negotiate bilateral FTAs
with very small players in the world economy. In light of the steep asymmetries involved,
especially within the Western Hemisphere, it is no wonder that US negotiators havesucceeded in winning legal and regulatory concessions involving the implementation of
the new trade agenda within these small open economies. Finally, we conferred withthose who have interpreted the US competitive liberalization strategy as an end in itself,
rather than a complementary and transitional means for obtaining a multilateralagreement. In contrast to the 1980s, this claim has become increasingly less credible.
Instead the willingness of the US to negotiate bilaterally with small developing
countries has been a disincentive for the latter to stay the course with the Doha round,and thus appears to work directly against the completion of a multilateral agreement any
time soon. And, despite the low buzz in Washington about weaving together the existing
US FTAs in the Western Hemisphere into a regional-12 grouping, any further
competitive gains surely lie in the kinds of market access concessions that remain to be
won in the multilateral arena. Furthermore, the exclusion of the larger MERCOSUR
countries from this regional-12 grouping would do little to promote dynamic hemisphericgains or to jump-start the Doha Round.
The latter will most likely occur in response to China's increasingly assertive
strategy of negotiating bilateral FTAs across Asia (Schott, 2006). Herein lies partial
justification for the US pursuit of bilateral FTAs with Singapore and Australia, as each is
now preparing for FTA negotiations with China. While issues around market access and38the new trade agenda similarly dominated both sets of FTA negotiations, the US proposal
to negotiate was also inspired by the heightened competition from China in both of thesemarkets. As a major trade and investment partner in the region as a whole, the spread ofpreferential trading agreements across Asia could inflict substantial economic losses for
the US.
Thus, the negotiation of the US-Korea FTA signals another attempt by the US to
mitigate potential losses for US exporters and investors. The good news is that US
policymakers operating out of the USTR in the executive branch of government are now
seeking FTAs with bigger players that matter, both in terms of future economic andpolitical gains and for the impact that these larger agreements may have in revitalizing
multilateral talks. The bad news, as the Colombia and Korea FTAs remain stalled in thelegislative queue, is that the US congress appears to be oblivious to the stakes at hand.
Even more unsettling is the prospect of another US trade policy blackout akin to that of
the 1994-2002 period, as indicated by the tone of the Democratic Party majority that now
controls the crucial committees for passing these FTAs. The small window of political
opportunity for trade policymaking that exists through the final months of the Bushadministration may indeed turn out to be the final window for some time to come.

39

References
Bhagwati, J. 2008. Termites in the Trading System. New York, NY: Oxford University
Press.
Baldwin, R. 1997. “The Causes of Regionalism,” The World Economy 20 (7): 865–888.
Chan, M. 2005. “US Trade Strategy of Competitive Liberalization,” Tamkang Journal ofInternational Affairs, available at http://www2.tku.edu.tw/~ti/Journal/8-3/831.pdf.
Chase, K. 2005 Trading Blocs. States, Firms and Regions in the World Economy. Ann
Arbor, MI: University of Michigan Press.
Cohn, T. 2007. “The Doha Round: Problems, Challenges, Prospects.” In Requiem or
Revival? The Promise of North American Integration, edited by I. Studer and C. Wise.
Washington, DC: Brookings Institution Press.
Colvin, J. 2004, “The Costs of Competitive Liberalization”, available at
http://www.americanprogress.org/issues/2004/11/b255995.html. Accessed 1 November
2007.
Cooper. 2005. The U.S.-Australia Free Trade Agreement: Provisions and Implications –Congressional Research Service Report for Congress in
http://www.nationalaglawcenter.org/assets/crs/RL32375.pdf. Accessed 1 May 2008.
Dent, C. 2003. “Networking the Region? The Emergence and Impact of Asia-PacificBilateral Free Trade Agreement Projects,” The Pacific Review 16 (1): 1-28.
Destler, I.M. 2005. American Trade Politics. Washington, DC: Institute for International
Economics.
Destler, I.M. 2007. "US Trade Politics During the Uruguay Round.” In Requiem or
Revival? The Promise of North American Integration, edited by I. Studer and C. Wise.
Washington, DC: Brookings Institution Press.
ECLAC. 2003. Latin America and the Caribbean in the World Economy, 2001-2002
available at http://www.cepal.org/publicaciones/Comercio/9/LCG2189PI/lcg2189i.pdf.
Accessed 10 November 2007.
ECLAC. 2007. Latin America and the Caribbean in the World Economy 2006. Trends
2007
availableat
http://www.eclac.org/cgibin/getProd.asp?xml=/publicaciones/xml/8/29528/P29528.xml&xsl=/comercio/tpli/p9f.xsl&base=/tpl-i/top-bottom.xslt. Accessed 15 November 2007.

40

Evennet, S. and Meier, M. 2007. “An Interim Assessment of the US Trade Policy ofCompetitive
Liberalization”
availableat
http://www.evenett.com/articles/CompLiberalization.pdf. Accessed 1 November 2007.
Feinberg, R. 2003. “The Political Economy of United States’ Free Trade Agreements,”
The World Economy 26 (7): 1019-1040.
Grieco, J. 1997. “Systemic Sources of Variation in Regional Institutionalization inWestern Europe, East Asia, and the Americas.” In The Political Economy of Regionalism,
edited by E. Mansfield and H. Milner. New York, NY: Columbia University Press, 164–
187.
Haggard, S. 1997. “Regionalism in Asia and the Americas.” In The Political Economy ofRegionalism, edited by E. Mansfield and H. Milner. New York, NY: Columbia
University Press.
Hirschman, A. 1981. “A Generalized Linkage Approach to Development with Special
Reference to Staples.” In Essays in Trespassing: Economics to Politics and Beyond.
Cambridge: Cambridge University Press.
Katada, S. and M. Solís. 2008. “Competitive Regionalism: Explaining the Diffusion and
Implications of FTAs in the World Economy.” Mimeo.
Krueger, A. 1995. “NAFTA: Strengthening or Weakening the International Trading
System?” In The Dangerous Drift to Preferential Trade Agreements, edited by J.
Bhagwati and A. Krueger. Washington, DC: American Enterprise Institute Press.
Lengyel, M. and D. Tussie. 2006. “The Global Governance of Trade: A Trilemma,” Latin
American
Trade
Network
Working
Paper
#55,
July,
availableat
http://www.latn.org.ar/archivos/documentacion/PAPER_DOC55_WP_Lengyel,%20Tussi
e_The%20Global%20Governance%20of%20trade%20a%20trilemma.pdf. Accessed 15
November 2007.
Mansfield, E., H. Milner, and P. Rosendorff. 2002. “Why Democracies Cooperate More:Electoral Control and International Trade Agreements,” International Organization 56(3): 477-513.
Mansfield, E. and E. Reinhardt. 2003. “Multilateral Determinants of Regionalism: The
Effects of GATT/WTO on the Formation of Preferential Trading Arrangements,”
International Organization 57 (4): 829–862.
Markheim, D. (2008) “Free Trade Agreements Promoting Prosperity in 2008,” May 2, in
http://www.heritage.org/research/tradeandforeignaid/bg2132.cfm#_ftn10. Accessed 12
May 2008.

41

Milner, H. 1997. “Industries, Governments and the Creation of Regional Trade Blocs.”
In The Political Economy of Regionalism, edited by E. Mansfield and H. Milner. New
York, NY: Columbia University Press.
Odell, J. 2002. “Creating Data on International Negotiation Strategies, Alternatives, andOutcomes,” International Negotiation (7): 39-52.
Pastor, M. and Wise, C. 1994. “The Origins and Sustainability of Mexico’s Free-Trade
Policy,” International Organization 36 (2): 195-231.
Phillips, N. 2003. “The Rise and Fall of Open Regionalism? Comparative Reflections on
Regional Governance in the Southern Cone of Latin America,” Third World Quarterly 24(2): 217-234.
Rodrik, D. 2007. One Economics, Many Recipes: Globalization, Institutions, andEconomic Growth. Princeton, NJ: Princeton University Press.
Schott, J. (ed). 2004. Free Trade Agreements: US Strategies and Priorities. Washington,
DC: Institute for International Economics.
Schott, J. 2006. "Free Trade Agreements and US Trade Policy: A Comparative Analysis
of US Initiatives in Latin America, the Asia-Pacific, the Middle East and North Africa,"
The International Trade Journal, 20 (9): 95-138.
Schott, J. 2007. “Trade Negotiations Among NAFTA Partners: The Future of North
American Economic Integration.” In Requiem or Revival? The Promise of North
American Integration, edited by I. Studer and C. Wise. Washington, DC: Brookings
Institution Press.
Stark, J. (ed) 2001. The Challenge of Change in Latin America and the Caribbean. Coral
Gables, FL: University of Miami North-South Center Press.
Stoler, A. 2004. “Australia-US Free Trade: Benefits and Costs of an Agreement.” InFree Trade Agreements: US Strategies and Priorities, edited by J. Schott. Washington,
DC: Institute for International Economics.
Tussie, D. and M. Lengyel. 2006. The Global Governance of Trade. A Trilemma. In
http://www.latn.org.ar/archivos/documentacion/PAPER_DOC55_WP_Lengyel,%20Tussi
e_The%20Global%20Governance%20of%20trade%20a%20trilemma.pdf. Accessed 28
November 2007.
Tussie, D. and C. Quiliconi. 2005. “The Current Trade Context.” Human Development
Report Office, Occasional Paper 2005/24.

42

United States General Accounting Office (GAO). 2004. International Trade. Intensifying
Free Trade Negotiating Agenda Calls for Better Allocation of Staff and Resources.
Washington, DC: GAO.
U.S. Senate Finance Committee. Hearing on the “Implementation of US Bilateral Free
Trade Agreement with Singapore and Chile,” 108th Congress, First Session, 17 June
2003. S. HRG. 108-333.
U.S. House of Representatives, Committee on Ways and Means. Hearing on the“Implementation of U.S. Bilateral Free Trade Agreements with Chile and Singapore.”
108th Congress. First Session: 10 June 2003. U.S. Governments Printing Office: SerialNo. 108-24.
USTR. 2002. “Free Trade with Singapore: America's First Free Trade Agreement inAsia”
in
http://www.ustr.gov/Document_Library/Fact_Sheets/2002/Free_Trade_with_Singapore_
America's_First_Free_Trade_Agreement_in_Asia.html. Accessed 25 March 2008.
USTR. 2003. “USTR Notifies Congress of Intent to Initiate Free Trade Talks with the
Dominican Republic,” Press Releases, August 2003.
USTR. 2007. NAFTA Facts. NAFTA Policy Brief –October 2007 in
http://www.ustr.gov/assets/Trade_Agreements/Regional/NAFTA/Fact_Sheets/asset_upload_file366_13495.pdf. Accessed 11 May 2008.
USTR.
2007.
CAFTA-DR
FactsCAFTA
PolicyBrief.
July
http://www.ustr.gov/assets/Trade_Agreements/Regional/CAFTA/Briefing_Book/asset_u
pload_file601_13191.pdf. Accessed 8 May 2008.
http://www.ustr.gov/Document_Library/Press_Releases/2003/August/USTR_Notifies_C
ongress_of_Intent_to_Initiate_Free_Trade_Talks_with_Bahrain.html?ht=. Accessed 28
April 2008.
Vieth, W. 2005. “Bush Wins Approval of Trade Pact: Contentious House Vote to Ratify
CAFTA is Seen as More of a Political than Economic Victory,” Los Angeles Times, 28
July, A.1.
Viner, J. 1950. The Customs Union Issue. New York and London: Carnegie
Endowment for International Peace and Stevens & Sons Ltd.
Weintraub, S. 2004. “Lessons from the Chile Singapore Free Trade Agreements.” In Free
Trade Agreements: US Strategies and Priorities, edited by Schott, J. Washington, DC:
Institute for International Economics.

43

Wise, C. 2007. “No Turning Back: Trade Integration and the New Development
Mandate.” In Requiem or Revival? The Promise of North American Integration, edited by
I. Studer and C. Wise. Washington, DC: Brookings Institution Press.
Wise, C. 2008. “The U.S. Competitive Liberalization Strategy: Canada’s Policy
Options.” In Canada Among Nations, edited by J. Daudelin and D. Schwanen. Montreal
and Kingston: McGill-Queen’s University Press.
Wise, C. and C. Quiliconi. 2007. “China’s Surge in Latin American Markets: Policy
Challenges and Responses,” Politics and Policy 35 (3): 410-38.
Zabludovsky, J. and S. Gómez Lora. 2007. “Mexico, the FTAA, and Perspectives for
Hemispheric Integration.” In Requiem or Revival? The Promise of North American
Integration, edited by I. Studer and C. Wise. Washington, DC: Brookings Institution
Press, 91-107.
Zoellick, R. 2001. “American Trade Leadership: What Is At Stake?” Remarks made at aspeech at the Institute for International Economics. 24 September, Washington, DC.
Zoellick, R. 2007. “Happily Ever AAFTA.” Wall Street Journal, 8 January, A17.

44

GIARI Working Paper Vol. 2008-E-7,
June.30 2008
Published by Waseda University Global COE Program
Global Institute for Asian Regional Integration (GIARI),
Waseda University, Nishiwaseda Bldg. 5F#507 1-21-1
Nishi-waseda, Shinjuku-ku, Tokyo 169-0051 Japan
E-mail: affairs@waseda-giari.jp
Webpage: http://www.waseda-giari.jp
Printed in Japan by International Academic Printing Co.Ltd