Irish, Charles R; Peng, Shin-Yi --- "The Personalities and Policies Affecting US Trade with East and Southeast Asia: The Implications of the Trade Promotion Authority" [2004] IntTBLawRw 3; (2004) 9 International Trade and Business Law Review 45

• The Personalities and Policies Affecting US Trade with East and Southeast Asia: The Implications of the Trade Promotion Authority
• Introduction
• The Environment of US Trade Policies
• The Domestic economy
• The Domestic Politics
• Congress and the President on international economic affairs
• The even split between the Democrats and the Republicans
• The widespread sense of being treated unfairly
• The US in World Politics
• The Realities of International negotiations
• People involved in the formulation of US international trade policies
• Members of the executive branch
• Key Members of Congress
• The Content and Context of the US trade policies: the background of the renewal of the fast track authority
• Trade policies of the Bush Administration
• A close examination of the Bush Administration’s recent actions affecting international trade
• Tempered protectionism for the American Steel industry
• Agricultural subsidies – from liberalisation to protectionism and back
• The road from the Multifibre agreement to the Agreementon Textiles and Clothing
• The US position on LDCs’ adherence to the TRIPs Agreement
• The implications of the Singapore-US Free Trade Agreement
• Free trade or protectionism: which will it be for the Bush Administration?
• The trends and prospects in the Coha Round: the impact of the passage of TPA on future US trade negotiations with Asian economies
• ‘Either progress or collapse’: is the bicycle falling down in Doha?
• The price to pay at Doha for achieving the TPA
• The prize to gain at Doha after the TPA struggle
• Asia’s possible responses
• The possible extension of FTA: racing towards regional trading arrangements?
• The potential positions and alliances in the WTO
• Conclusion

The Personalities and Policies Affecting US Trade with East and Southeast Asia: The Implications of the Trade Promotion Authority

Charles R Irish^[*] & Shin-yi Peng^[**]

Introduction

There is a close economic interdependence between the US and East and Southeast Asia. Economic relations between the US and Asia comprise trade in goods, services and capital, and the movement of people for temporary employment or permanent migration. Between the US and East Asia, exports from the US to East Asia have exceeded those to any individual country except Canada and over two million jobs in the US were dependent on the East Asian market in the early 1990s.[1] In Southeast Asia, trade between ASEAN[2] and the US has tripled over the past decade. In mid 1997, the East and Southeast Asian region experienced the most sudden reversal of growth of any region in the last 50 years outside of war conditions. The economic interdependence between US and the East and Southeast Asian market, however, was not dramatically changed by the Asian crisis. Currently, the US is the largest market for ASEAN exports[3] and ASEAN is the third largest overseas market for the US. US exports to ASEAN reached US$23.1 billion in the first half of 2001, up 7% from the same period of 2000.[4] US investment in the ASEAN region at the end of 2000 stood at slightly under US$52 billion, roughly five times as large as current US investment in China.[5] US investment in ASEAN at the end of 2003 stood at slightly over US$88 billion, according to figures from the US Department of Commerce. However, in the first 11 months of 2003, US investment fell more than 24% from 2002.

The following tables illustrate East and Southeast Asia’s present close economic links with the US.

Table 1 Two-way goods trade between the US and East Asian Economies[6] (Figures in US$ billions)

Year 2001	The US Trade Deficit Or Surplus (US$)	Two-way Goods Trade (US$)	Ranking
Japan	Deficit, $69 billion	-US exports to Japan totalled $57.6 billion -US imports from Japan totalled $126.6 billion	The US’s 3rd largest export market7
Korea	Deficit, $13 billion	-US exports to Korea totalled $22.2 billion -US imports from Korea totalled $35.2 billion	6th
China	Deficit, $83.0 billion	-US exports to China totalled $19.2 billion -US imports from China totalled $102.3 billion	9th
Taiwan	Deficit, $15.2 billion	-US exports to Taiwan totalled $18.2 billion -US imports from Taiwan totalled $33.4 billion	10th (and the 5th largest market for US agricultural products)
Hong Kong	Surplus, $4.4 billion	-US exports to Hong Kong totalled $14.1billion -US imports from Hong Kong totalled $9.7 billion	13th

Table 2 Two-way goods trade between the US and ASEAN Economies⁸ (Figures in US$ millions)

YEAR 2001	US EXPORTS TO ASEAN	US IMPORTS FROM ASEAN
Brunei	104	399
Cambodia	30	936
Indonesia	2,499	10,105
Laos	4	4
Malaysia	9,380	22,336
Myanmar	11	470
Philippines	7,665	11,331
Singapore	17,692	14,979
Thailand	5,995	14,729
Vietnam	461	1053
ASEAN	43,841	76,369

Table 3 Trade in services between the US and East Asian economies[9]

YEAR 2000	US EXPORTS OF PRIVATE COMMERCIAL SERVICES (INCLUDING MILITARY AND GOVERNMENT) (US$)	US IMPORTS OF SERVICES (US$)
Japan	$34.2 billion	$17.2 billiom
Korea	$6.9 billion	$4.2 billion
China	$4.6 billion	$2.8 billion
Taiwan	$4.7 billion	$3.7 billion
Hong Kong	$3.8 billion	$4.1 billion

Table4 The US FDI (foreign direct investment) in East Asian economies[10]

YEAR 2000	US FDI (US$)	US FDI CONCENTRATION SECTORS
Japan	$55.6billion	Automobile, telecommunications and finance
Korea	$9.4 billion	Manufacturing, banking, and petroleum
China	$9.6 billion	Electronics manufacturing, petroleum, and financial sectors
Taiwan	$7.7 billion	High-tech, finance and wholesale sectors
Hong Kong	$23.3 billion	Finance, wholesale services, and manufacturing sectors

The East and Southeast Asian economies have grown faster and more steadily than any other region in the world. Their past success has depended largely on the access opportunities to foreign markets in the last few decades. Their continued prosperity still relies on the availability of a free and fair global market. The above tables illustrate that Asian export dependence on the US is still quite substantial. This means that access to the US market continues to be crucial for Asian economies. The US trade policy, therefore, plays a significant role in the continued economic growth of East and Southeast Asia.

The Environment of US Trade Policies

The US is a large, complex society. Its government is every bit as large and complex as the society it serves. It is not surprising then that the environment affecting trade policies is composed of several different factors which are often somewhat inconsistent, and sometimes directly contradictory. The overall environment has four interrelated components: the domestic economy, the domestic political picture, the international economic and political situation and the realities of international negotiations.

The Domestic economy

With a GDP of about $10 trillion, the US economy is the largest in the world. The US is also the world’s largest exporter with exports of more than $1 trillion; and it is by far the world’s largest importer, with imports of close to $1.5 trillion. Although clouded by uncertainty of war and sluggish economic growth, the US economy is not depressed. In fact, forecasters show that the American economy is expected to grow by a respectable 2.7% in 2002, and 3.4% in 2003.[11] Therefore, it does not appear that the economy should be a major concern for US trade policy makers, save that:

• for the last few years, the US has had an enormous deficit in its current account, which certainly contributed to the rapid recovery of East and Southeast Asian regions from the 1997 financial crises. The current account deficit is continuing to grow. For 2003 it is forecast to be over $500 billion and will exceed 5% of the US GDP. If that happens, the US current account deficit will be four times greater than the entire Thai economy. The US will need net capital inflows of $2 billion per day to sustain it. No wonder that the IMF considers the US current account deficit to be one of the biggest threats to the world economy;
• the dollar appears to be somewhat overvalued relative to the currencies of most other industrialised countries and many emerging market currencies. For example, according to The Economist’s recent Big Mac index,¹² the Japanese yen appears to be 19% undervalued against the dollar, the Australian dollar is 35% undervalued, and over half of the emerging market currencies are more than 30% undervalued;
• thirty years ago, the US economy was largely self-sufficient. Trade accounted for about 11% of the GDP and was often regarded as not having a major impact on economic growth. Today, the American economy is much more integrated into the world economy, with trade accounting for close to 30% of GDP and exports responsible for about one-quarter of US growth. The greater importance of international trade also has increased the number of people adversely affected by the inevitable dislocations caused by import competition and rapid technological change. In the 1960s the losers were relatively few and fairly predictable – textiles, steel and shoes. However, as trade expanded, so too did the list of losers who were widely regarded as strengths in the American economy – consumer electronics, automobiles, machine tools, and semi-conductor chips. Although the expansion of trade also increased the number of winners, the losers have tended to seek government support for protection from imports, while the winners have focused on doing business in a more globalised economy.[13]

The effects of these changes in the US economy are the subject of continuing debates; but they certainly raise questions about the sustainability of American economic prosperity and they increase the sense of economic insecurity.

The Domestic Politics

There are three significant elements of the American political scene affecting international trade policies: The first is the extraordinary power of the US Congress to influence international trade policies; second is the almost perfectly even split between the Democrats and the Republicans in national politics, with neither side possessing a clear mandate; and, third, is the widespread sense among the American public that the US is not treated fairly in international trade or business.

Congress and the President on international economic affairs

The basic structure of the American system of government anticipates continuing tension between Congress and the President. During the last few decades this tension has been clearly evident in the struggle between Congress and the President for supremacy on international economic policies. Congress and the President have overlapping responsibilities on international economic policy matters. Congress generally is responsible for enacting laws. Congress also has the power ‘to lay and collect taxes, duties, imposts and excises’ and ‘to regulate commerce with foreign nations’. Thus, on international trade and investment matters, it is Congress that has broad powers and it guards these powers very carefully. This is critical to understanding US international economic laws and policies: it is Congress, not the President, which has broad authority to make laws determining US international economic policy. Congress also is very conscious of its extraordinary powers in international economic policy matters and is not shy about asserting itself.

The President and other members of the executive branch are responsible for administering the laws passed by Congress. The President is also given authority to conclude treaties and to conduct foreign affairs. The President’s treaty-making power is limited somewhat by the requirement that many treaties have to be approved by Congress. In addition, most treaties to which the US is a party are not self-executing. Instead, before the treaties become effective within the US, Congress has to pass implementing legislation. There is, however, one mechanism available to the President which is somewhat independent of Congress – the conclusion of ‘executive agreements’ which do not require congressional ratification. Over the last several decades, presidents have made increasing use of executive agreements, sometimes with the tacit approval of Congress, but occasionally in the face of congressional opposition. Some of these executive agreements have involved very important international economic issues, so the President also is able to influence significantly international economic policies. American participation in the original General Agreement on Tariffs and Trade in 1947 and the American financial assistance for Mexico in 1994-95, for example, were both accomplished through executive agreements. Even with executive agreements, however, the President has to be conscious of Congress since an agreement that runs contrary to the mood of Congress is likely to invite some form of congressional retaliation.[14]

Congress is composed of over 500 members and it would therefore be too unwieldy for Congress itself to negotiate international economic laws with foreign countries. Congress, therefore, delegates the authority for negotiating bilateral and multilateral trade and investment agreements to the executive branch. Thus, Congress really holds a very powerful position in developing international economic laws and policies: a great amount of the authority the executive branch has to negotiate agreements affecting international commerce comes from an express and limited delegation of authority from Congress. Furthermore, the delegation of power extends only to the negotiation of the agreements; final approval of the agreements inevitably requires a favourable vote in Congress.

It is because of the division of responsibility between the President and the Congress that ‘fast track’ negotiating authority is so critical to the conclusion of international trade agreements. Foreign governments have been reluctant to negotiate seriously with the office of the President because of Congress’s very considerable power over international economic matters. The foreign governments understand that final approval of any agreement rests with Congress, not the President. So, to improve the credibility of the office of the President, on many instances over the last 70 years, Congress has agreed to limit its powers of review to a simple yes or no vote on the final agreement. In granting fast track negotiating authority to the office of the President, Congress has warranted that it will not accept parts of an agreement and seek to renegotiate other parts; instead, it will vote to accept or reject the entire agreement. Therefore, even when it has given fast track negotiating authority, Congress still has influence over the negotiations by being a significant, but behind the scenes participant in the negotiating process and then having the final voice in deciding whether to accept or reject the agreement.

The North American Free Trade Agreement in 1993 and the Uruguay Round of multilateral trade agreements in 1994 were the last occasions where the fast-track authority was applied. During the remainder of the Clinton Administration and through the first 18 months of the Bush Administration, Congress has been unwilling to give the office of the President fast track negotiating authority. The Clinton Administration sought fast track authority three times, but Congress denied it in each instance.

The ‘authorising without realising’ NAFTA Experience¹⁵ that the Congress had gone through contributed to the congressional reluctance in the renewal of the fast track. The fast track provisions of the Omnibus Trade and Competitiveness Act of 1988 were enacted for the Uruguay Round. The language was broad, providing for multilateral trade negotiations with foreign countries and bilateral negotiations with foreign countries in sections 1102b and 1102c, respectively. Armed with the fast track, the executive branch pursued the NAFTA Agreement and the Congress never had an opportunity to vote on whether the negotiation should be initiated. Instead, it only approved after the pact was negotiated for implementation, and when the President highlighted the cost of repudiation.

In December 2001, the House of Representatives agreed by one vote to trade promotion authority (TPA), which is the current title for fast track negotiating authority) and on 9 May 2002, the Senate and the President agreed to a new trade Bill that would include TPA. The House Bill (voted in December 2001) and the Senate Bill (voted in May 2002) differed in several crucial respects. The Senate Bill included stronger protections for workers. Moreover, the Senate added an exception to the President’s power to set the terms of the trade agreements by reserving for Congress the right to alter any provisions that would weaken anti-dumping law protecting US industries. The House and Senate versions had to be reconciled and voted on again before the TPA Bill could be sent to the President Bush. A joint Senate-House committee set up to hammer out a compromise Bill reached agreement on the final version in late July. Finally, on 1 August 2002, the US Congress passed the TPA legislation. The final version retained the worker-benefits package approved in the Senate version but dropped the controversial antidumping measure. However, the President would be instructed to consult with Congress before negotiating a trade agreement that could undermine US antidumping laws. This TPA Bill, in force until 2007, was passed by a three-vote margin in the House and was approved by the Senate only after the Administration made major concessions to Congress by agreeing to increase the protection to US workers against global trade competition. The newly granted authority will enable the Bush Administration to move more aggressively on the next round of trade talks within the WTO. The TPA also will enable the United States Trade Representative (USTR) to pursue negotiations of bilateral agreements such as the Free Trade Agreement of the Americas (FTAA).[16]

The even split between the Democrats and the Republicans

The November 2000 elections were extraordinary because they produced a national government evenly divided between Democrats and Republicans. George W Bush lost the popular vote, but won the presidential election because of peculiarities (many would say irregularities) in the American voting process. The Republicans maintained a narrow majority in the House of Representatives. The Senate was split 50/50 until James M Jeffords (Vermont) switched from the Republican to the Democratic Party, which gave the Democrats control at 51 to 49. The almost perfectly even split between the Democrats and Republicans means that swing voters in Congress have great powers to influence policies, as evidenced by the Bush Administration’s concessions for the steel, farm and textile issues which are discussed below.

The widespread sense of being treated unfairly

A further political element is that the US is like many other countries – it is always much easier for government leaders to point at foreigners as the cause of local problems, and that is precisely what American politicians have done. It matters not whether they are Democrats or Republicans, national leaders or local officials; American politicians commonly blame foreign governments, foreign businesses and foreign workers for many of the problems they face. It is very common, for example, for foreign businesses and their imports into the American economy to be blamed for economic dislocations, when in reality the dislocations are caused more by technological changes and the inability (or refusal) of American businesses to adapt.

There is, however, at least one element of truth in the American sense of unfair treatment: With only a few notable exceptions in textiles, apparel and some agricultural products, US markets are generally much more open than foreign markets. The quality, quantity and prices of goods and services in the US markets are almost always superior to that found in foreign markets. Even shoppers’ paradises, such as Bangkok, Hong Kong and Singapore, do not compare with the markets in the US for most goods and services.

Most East and Southeast economies, including China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, were listed on the USTR’s 2002 annual National Trade Estimate Report on Foreign Trade Barriers. The US trade deficit with China, for example, was $83 billion in 2001. Japan, especially, was strongly criticised by the USTR Report on Foreign Trade Barriers. The first page of the Japan section in the Trade Barrier Report began with ‘beset with structural rigidity, excessive regulation and market access barriers … the US trade deficit with Japan was $69 billion in 2001’ (and the trade deficit was $81.6 billion in 2000).

So, Americans are accurate in thinking that trade liberalisation has not been reciprocal. The US generally has opened its markets more than in other countries. Many American political groups have used this lack of reciprocity to create further hostility to international institutions, foreign governments and foreign businesses.

• The American environmental movement claims that the trade rules under NAFTA and the WTO are eroding the sovereignty of American government institutions and diminish the effectiveness of American environmental laws. The reality is that the regional and international trade rules have made it possible for foreign producers to challenge US environmental laws that adversely affect imports into the US. In the Shrimp/Turtle dispute, for example, Thailand and several other countries challenged the US embargo on shrimp not caught with Turtle Exclusion Devices (TEDs). But even where the challenges have been successful and, as occurred in the Shrimp/Turtle dispute, it is shown that the law was more about protecting the US shrimp industry than sea turtles,[17] the environmental laws have not been automatically invalidated. Instead, a successful challenge of US environmental laws is only the first step toward a final settlement, which may involve leaving the environmental laws in place. Even though the US lost its appeal in the Shrimp/Turtle case, the USTR expressed pleasure with the appellate body’s finding that section 609 of the US Endangered Species Act was not inconsistent with the GATT. On the other hand, Thailand has expressed serious concern over the appellate body’s apparent deference to the US’s environmental protection claims. In other words, although the US lost the legal case, the appellate body has recognised the potential legitimacy of unilateral measures. The future US complainants may, therefore, ultimately be prompted to upgrade its environmental regulations.[18]
• Organised labour in the US is hostile to trade liberalisation because of the fear that it causes an outflow of skilled jobs to countries with lower labour costs and less rigorous laws on worker health and safety. The reality is that trade liberalisation does accelerate the process of economic evolution and it inevitably results in economic dislocations; and for people who have lost their jobs as a result of increased imports the dislocations are extremely painful. However, trade liberalisation also leads to new job opportunities and almost always there are more new job opportunities than the jobs lost through trade liberalisation. The advent of computer technology and word processing software have had devastating effects on the typewriter industry, for example, but the answer is not to return to a pre-computer age. Instead it is to provide adjustment assistance to the workers displaced by the modernisation process. Further, in part because of the openness of the American economy and the market liberalisations introduced by NAFTA and the Uruguay Round agreements, the American economy has been exceptionally vigorous in the creation of new jobs. As a result, as manufacturing jobs have declined in the US, the declines have been more than offset by new jobs in services industries.

The overall effect of the domestic political scene is to put foreign businesses and international trade in an unfavourable light. Within the US, there is an undercurrent of hostility toward foreign businesses and foreign made products and services.[19] In this climate of hostility, trade liberalisation policies are very vulnerable.

The US in World Politics

Fifty years ago, the US was economically and politically pre-eminent in the world. During the last few decades, however, the growing prosperity in Western Europe and East and Southeast Asia, and the increased power and sophistication of business enterprises from these regions have effectively challenged the US, both politically and economically. The economic power of US trading partners is too great to ignore. Foreign industries are so strong and US businesses and workers are so vulnerable that the US can no longer maintain unilaterally open markets. Consequently, it is likely that the US’s trading partners will be asked to make parallel commitments to liberalise their markets.

In addition, the tragedies of 11 September 2001 and events immediately thereafter have had a profound impact on the attitude of the US in world affairs. The terrorism of 11 September 2001 destroyed much more than the twin towers of the World Trade Center. It also ended the American sense of security and it opened up a new era of vulnerability. The terrorist acts demonstrated most clearly the capacity for a few deeply committed individuals, with or without state sponsorship, to inflict grievous harm on large numbers of people.

The US military campaign in Afghanistan proved the global dominance of the US armed forces. At the same time, it has become apparent that military power alone cannot protect the US and US interests abroad. The US needs the co-operation of its allies to deal effectively with the sources of terrorism and to reduce poverty and ignorance, which are the fertile breeding grounds for future terrorists.

While events since 11 September have demonstrated US military superiority, they also have shown the need for closer international co-operation. Of course, where US interests are in imminent danger and others will not step forward as allies, the US Government has made it clear that it will take whatever actions, including preemptive actions, as are necessary to remove the threats. This is behind President Bush’s ‘axis of evil’ speech.²⁰ However, the US Government recognises that unilateral action is not the preferred course. It may be less effective than multilateral responses and it is more likely to engender further hostile responses targeting US interests. Unilateral action also will drive other governments to seek coalitions to counter US power.[21]

From the above analysis of economic and political aspects, one single goal is shown: reciprocity. Market opening concessions should be on a reciprocal basis, where the opportunities for US exporters of goods and services match the opportunities for foreign exporters in US markets.

The Realities of International negotiations

The political manoeuvres in the US may not be aimed just at the American public. Instead, American politicians may think that it is in the best interests of the US to keep foreign businesses and governments confused about US international economic policies. If foreign businesses and governments know that the US has an unwavering commitment to open markets and free trade, they will be less likely to deal cautiously with the US. If foreigners believe that they will have free access to the American markets without regard for their own trade barriers, the American negotiators will have little chance of persuading them to adopt economic policies that produce domestic turmoil in their own countries. However, if foreign businesses and governments are unclear about American commitments to trade and investment liberalisations, they will pay closer attention when American politicians speak about a return to protectionist policies.

As a result, uncertainty in American international economic policies may actually serve American interests – it may encourage foreign governments to make market opening concessions in spite of strong local opposition.²² It may make our threats of retaliation more credible and may influence foreign enterprises as they decide where to locate new production facilities.

People involved in the formulation of US international trade policies

Members of the executive branch

The President and other members of the executive branch are responsible for administering the laws passed by Congress. The President, George W Bush, given authority to conclude treaties and to conduct foreign affairs, has publicly advocated open markets and free trade. Some of President Bush’s major trade initiatives are the Free Trade Agreement for the Americas, the Singapore/US Free Trade Agreement, and the addition of Chile to the North American Free Trade Agreement. President Bush has also consistently pressured the US Congress for ‘trade promotion authority’ which would greatly enhance the Bush Administration’s credibility in international trade negotiations.

People responsible for international trade matters within the US Government tend to fall into two broad categories. Ambassador Robert Zoellick, the current US Trade Representative and the person who appears most responsible for international trade policies and laws, is a good example of one category. He is clever, with a Phi Beta Kappa from Swarthmore College and a JD and Master’s in Public Policy from Harvard, magna cum laude. He has had eclectic work experience, having worked in various positions in the US Treasury, the State Department, Fannie Mae (the largest housing finance investor in the US), senior adviser for Goldman Sachs, and as an academic at Harvard and the US Naval Academy. Ambassador Zoellick also has impressive credentials in support of free trade:

• He worked as the lead State Department official in the negotiations on NAFTA and the Uruguay Round.
• He played a key role in the establishment of the Asia Pacific Economic Cooperation group (APEC) and was instrumental in securing ‘fast track’ negotiating authority for the first Bush administration.

In February 2002, David Spooner was appointed the special textile negotiator within the USTR’s office. Mr Spooner’s background fits the other common profile among government officials working on international trade issues. He has a close association with Congress on a specific industry in the US private sector. Before his appointment as special textile negotiator, Mr Spooner was an adviser on textile trade issues for House of Representatives member Sue Myrick, a Republican from North Carolina. Not surprisingly, the US textile industry has a significant presence in Representative Myrick’s legislative district and Mr Spooner’s appointment as special textile negotiator insures that the textile industry has easy access to USTR’s office whenever textiles trade matters arise.

Donald Evans, the US Secretary of Commerce, a Texas educated engineer and oilman, also seems to fit the profile of people with close experience and empathy for the US private sector. This is consistent with the US Commerce Department’s mission of being supportive of US businesses both at home and abroad.

Key Members of Congress

As indicated earlier, it is Congress, not the President, which has broad authority to make laws determining US international economic policy. The division of responsibility between the President and the Congress ensures the TPA is so critical to the conclusion of international trade agreements. However, in granting TPA to the office of the President, Congress has warranted that it will not accept parts of an agreement and seek to renegotiate other parts; instead, it will vote to accept or reject the entire agreement. Therefore, even when it has given TPA, Congress still has influence over the negotiations.

Senate Majority Leader and Finance Committee Chairman Hugh Leatherman (Republican, Florence) and House Ways and Means Committee Chairman Bobby Harrell (Republican, Charleston), key members of the Congress, play a major role in trade policy. Due to the considerable powers of Congress to influence trade matters, Senators Leatherman and Harrell, who are currently serving as chairmen of powerful committees, are therefore crucial to helping push through trade bills.

Dick Gephardt and Ernest Hollings, two protectionist members of Congress, are also significant to the formation of the US trade policy. Dick Gephardt (Democrat, Missouri) has shown protectionism trade policy by the positions he has taken in the following matters:

• he led the Democratic Congress members to demand that the TPA include adequate assurances that require the US trading partners to respect core labour rights as defined by the International Labour Organisation, including a ban on child labour and environmental protection;[23]
• he led the House Democrats to vote against granting China PNTR.²⁴
• As for Senator Ernest Hollings (Democrat, South Carolina), he emphasised protectionism by the position he has taken in the following issues:
• with Dick Gephardt, he demanded that the TPA include adequate assurances on labour rights and environmental protection;
• he led critics of the merger of a US telecommunications company, VoiceStream, and a German telecommunications company, Deutsche Telekom, stressing the national security concern.
• he was the first to sponsor the Online Privacy Protection Act, which was opposed by many trade associations because the Bill may stifle the development of e-commerce and e-trade.

The Content and Context of the US trade policies: the background of the renewal of the fast track authority

Trade policies of the Bush Administration

The official international trade policy of the Bush Administration is no different from that of the previous administrations going back to the 1930s: the stated policy is unequivocal support for open markets and trade liberalisation. In furtherance of this policy, one of the major objectives of the Bush Administration has been to obtain ‘trade promotion authority’ (TPA) from Congress in order to proceed with the Doha round negotiations, the Free Trade Agreement of the Americas and other bilateral and regional trade initiatives.

The Bush Administration also continues the tradition of previous administrations in applying the ‘bicycle theory’ of trade negotiations: that is, it is imperative to continue negotiating for market opening agreements in whatever form possible, because once the negotiating process stops, market opening measures, like a cyclist, fall over (or, in a trade sense, move toward protectionism). When the Bush Administration did not have TPA, it had no ability to undertake major trade negotiations. However, consistent with the bicycle theory, the Bush Administration focused on bilateral trade agreements, such as the one being negotiated with Singapore, and others that have been proposed by Ambassador Zoellick.

In spite of the constant rhetoric in support of free trade, the Bush Administration’s recent actions affecting international trade seem to raise serious questions about the Bush Administration’s commitment to free market principles. The recent actions involving the imposition of protective tariffs on steel imports and the reintroduction of significant farm subsidies, for example, seem very much at odds with free market principles and they have been sharply criticised by US trading partners as ‘hypocritical’ and ‘obscene protectionism’. A close examination of these actions suggests a more complex interaction between a commitment to free trade and the remarkable power of key members of Congress and well organised special interests to influence trade policies. It is clear that the Bush Administration, in seeking short-term political gains, has squandered an opportunity to take a principled stand in favour of free trade. It also appears, however, that the pandering to key members of Congress and special interests in ways antithetical to free trade has been mitigated somewhat by steps taken in other fora which have tended to favour free trade principles. In addition, what appears at one level to be pandering to influential Congress people and special interests may on another level be the development of a negotiating position designed to maximise the ability of the USTR to secure market opening concessions in agriculture and other heavily protected industries.

A close examination of the Bush Administration’s recent actions affecting international trade

Tempered protectionism for the American Steel industry

On 5 March 2002, the Bush Administration announced the imposition of safeguard tariffs ranging from 8% to 30% on steel imports in order to provide temporary relief for the beleaguered US steel industry.[25] Between 1980 and 1998, 32 American steel companies were driven into bankruptcy with the loss of over 40,000 jobs. Faced with this predicament, the Bush Administration initiated a section 201 investigation by the US International Trade Commission (USITC). The USITC found unanimously that the American industry was being injured and recommended safeguard tariffs to slow the import surge until more normal economic conditions returned.

The decision has been excoriated by other trading countries, including Asian economies. Following the imposition of US safeguard measures, South Korea²⁶ and Japan have held a joint meeting on the issues and agreed to co-operate with each other, as well as work with China[27] to avoid any trade conflict that might arise from the US action to strengthen its import restrictions on foreign steel. In June 2002, the WTO DSB ‘panel on steel’ was established. The panel now has seven complainants: EC, Japan, Korea, China, Switzerland, Norway and New Zealand; and 14 third parties: Brazil, Chinese Taipei, Switzerland, Norway, Japan, Korea, Thailand, Canada, China, EC, Mexico, Turkey, Venezuela and Cuba. The complainants launched an immediate complaint in Geneva against the US and claimed that the US steel industry was making foreign rivals pay the price for its own overexpansion of capacity at a time of slowing demand.[28] The complainants said that the tariffs were a blatantly protectionist response to the US steel industry’s own problems. The US, on the other hand, argued that the tariffs are permitted under WTO rules which allow temporary restraints on trade if imports are causing serious harm to domestic industries.

The announcement in August 2002 that the new measures will exclude countries that have signed free trade agreements with the US – Canada, Israel, Jordan and Mexico, and developing countries with limited exports to the US who are also exempted,[29] has been greeted with approval from major trading partners, including the 15-nation European Union and Japan. As the exemptions have been granted, the EU and Japan have both backed off from threats to impose immediate sanctions although they are continuing to pursue a WTO case against the US’s action.

As indicated above, the US Congress has great powers over international trade policies. This means that individual members of Congress, especially swing voters, can exercise enormous influence to obtain results favourable to their constituents, even at the expense of injury to the national wellbeing. The current trade disputes over steel offer a prime example. It is claimed that imported steel is the principal cause of the problems facing the US steel industry. The reality, however, is that for the last 40 years US steel workers have become less and less productive relative to world production standards. During the same period, managers in the US steel industry have failed to modernise in order to meet new competitive challenges. The result is that many US steel producers are seriously uncompetitive precisely because the workers and managers have failed to respond to the pressures for change. It is true that import surges and global over-capacity have hurt the US steel industry, especially as a result of the economic crises in Russia and East and Southeast Asia in the late 1990s. A major cause of the uncompetitiveness in the US steel industry is largely due to poor management decisions that have failed to adjust to changing business conditions and a lack of productivity in the work force. In other words, US steel is uncompetitive more because of its own inaction than external market forces.

The very controversial decision of the Bush Administration to impose safeguard tariffs of up to 30% on steel imports, however, had little to do with the merits of the case brought by the US steel industry. It was done simply to improve the political prospects of the Republicans in several steel producing states – Ohio, Pennsylvania and West Virginia in particular.³⁰ As mentioned earlier, the even split between the Democrats and Republicans means that swing voters in Congress have great powers to influence policies, the steel tariffs being an illustrative consequence. The decision to impose the tariffs is inevitably the result of domestic political necessity and is not representative of any basic policies other than short-term political concerns overriding international objectives.

Even where the US steel industry is involved, it also is important to note that sometimes international relations do matter. While the initial foreign response to the steel tariffs decision was exceptionally hostile, in the months following the decision the criticisms have become less and less strident largely because of the Bush Administration’s liberal exemptions and exclusions from the products subject to the new tariffs. The European Union, for example, was one of the early leaders seeking retaliation, but it has delayed adopting retaliatory measures because of the growing list of exemptions and exclusions.

Agricultural subsidies – from liberalisation to protectionism and back

Agriculture is a heavily protected industry in the US, but it is even more heavily protected in the European Union, Japan and many other US trading partners. Criticism of the US’s agricultural trade policies thus needs to be tempered somewhat by the fact that the critics themselves generally have more protectionist policies for agriculture than the US. Nonetheless, the recent course of US agricultural trade policy seems wholly inconsistent with active support for open markets and, until late July 2002, it also seemed that the US was moving backwards towards greater protectionism.

As part of the Uruguay Round negotiations and as a result of considerable pressure from the US, WTO member countries agreed to establish a more fair and equitable agricultural trading system. Under the Uruguay Round’s Agreement on Agriculture, ceilings on trade distorting subsidies were set at $60 billion annually for the European Union, about $30 billion for Japan and $19 billion for the US. It also was agreed that negotiations would be continued in 2000 with the goal of obtaining even further liberalisations. In 1996, in action consistent with liberalisation of agricultural trade, the US passed a farm Bill that sharply limited agricultural subsidies to about $10 billion, which was well below the US limit set in the Uruguay Round. In November 2002, at the Doha Ministerial in November 2002, the US also insisted that agricultural trade liberalisation be a central element of the new round of multilateral negotiations.

The 2002 Farm Bill, signed into law by President Bush in May 2002, appears to destroy much of what had been accomplished in agricultural trade liberalisation in the preceding decade. The farm Bill raises the level of federal subsidies by over 80%, with enormous increases in subsidies for soya beans, wheat and corn; it introduces new subsidies for peanuts, lentils, chickpeas and dairy products; and it reestablishes subsidies for honey, wool and mohair that were cut in the mid 1990s.[31]

The 2002 Farm Bill represents an apparent triumph of short-term electoral politics over long-term trade policies. In supporting the Farm Bill, however, the Bush Administration’s strategy is similar to that behind its imposition of the protective tariffs on imported steel. It is expected to gain a political advantage in the November 2002 ‘mid-term’ elections for Republican congressional candidates in Iowa, Missouri and South Dakota, all of which have large, powerful farm lobbies. On the other hand, the prospects for increased subsidisation of US agriculture have taken much of the pressure off the Europeans and the Japanese, who have been consistently reluctant to agree to agricultural trade liberalisations.[31]

The May 2002 Farm Bill was followed in July 2002, by the announcement from the Bush Administration of an ambitious proposal to cut agricultural tariffs and domestic subsidies as part of the Doha Round of multilateral trade negotiations. The proposal would eliminate more than $100 billion in trade distorting domestic supports by 2010 and also lower the average tariff on farm products from 62% to 15%.[32] The proposal was sharply criticised by US major trading partners, although it is by far the most ambitious liberalisation scheme ever put forward for global agriculture. It appears, therefore, that the Bush Administration is seeking agricultural trade liberalisation at the multilateral level at the same time it is supporting greater subsidisation for US farmers. From a strategic perspective, the US farm subsidies will be used in a multilateral level of negotiation as bargaining chips that the US can give up in exchange for important concessions from the rest of the world.

The road from the Multifibre agreement to the Agreementon Textiles and Clothing

Up to the end of the Uruguay Round, trade in textile and clothing were governed by the rules of the Multifibre Agreement (MFA) through bilateral negotiations. The predecessor of the MFA, which allowed developed countries to impose quotas on clothing and textile imports from developing countries, was introduced in the late 1950s. The WTO Agreement on Textile and Clothing (ATC) replaced the MFA and set out a transitional liberalisation process progressively to enlarge existing quotas until their ultimate removal. Starting in 2005, in accordance with ATC obligations, these quantitative restrictions must end.[33]

Under the MFA the US sought time for its domestic industry to adjust to ‘cheap’ imports from developing countries. This adjustment has taken almost 50 years. During the Uruguay Round, the American Textile Manufacturers’ Institute strongly opposed the ATC,[34] indicating that the quota phase-out provisions of the ATC would completely dismantle the provisions of the MFA and throw the US textile and clothing market wide open to large Asian suppliers, which would result in the loss of over one million jobs in the domestic textile and apparel manufacturing sector and hundreds of thousands of additional jobs in related domestic supplier industries, such as fibres and chemicals.

The ATC brings textile trade under GATT. Most observers believe that benefits from phasing out the MFA would accrue to low wage Asian producers whose textile trade has been constrained by the MFA quota agreements. The textile industry is probably the most protected sector of the US economy, but the level of foreign penetration of the US market over the past 25 years has grown very dramatically. Between 1984 and 1994 the share of the imported textiles increased from 31.4% to 50.2% of the US market – indicating a high degree of foreign involvement in even the most protected industries.[35] In particular, Asian economies’ market share in US textile imports in 2001 was 49.7%, making them the largest supplier of textiles to the US textile market.³⁶ Asian textile exporting nations, however, are still increasingly impatient about the slow pace of trade liberalisation in the textile and clothing sectors and are pressing the US to speed up the dismantling of the old MFA.³⁷

The US textile industry has been attaching protection against the flow of imports from Asia to the 2002 TPA Bill. The strategy to attach the two issues together has successfully blocked Asian countries’ attempts at Doha to speed up the quota elimination process.[38] At Doha, while Asian textile exporting countries proposed a new method for the application of the ATC which is scheduled to come into effect in January 2005,[39] Mr Robert B Zoellick was under pressure from the US Congress not to yield ground on textiles. The Congress opposed any further concessions in the textile sector beyond those already agreed in the Uruguay Round. Any concession made on textiles at Doha could lead to the US Congress denying the Administration the fast track authority it seeks. To gain the all-important support of lawmakers from southern textile states for TPA, the Republican House leadership and the White House had promised Congressman Jim DeMint (Republican,-South Carolina) to take steps to limit textile imports. In addition, the formation of the American Textile Trade Action Coalition was announced on 14 May 2002. One of the main strategies for the coalition is to push the Bush Administration to keep the promises made in the TPA vote of December 2001.[40] For Asian textile exporting countries the road from MFA to ATC is a rather bumpy ride, caused largely by the very considerable political power of the US textiles and apparel industries.

The US position on LDCs’ adherence to the TRIPs Agreement

Before adopting TRIPs, developing countries deliberately removed the pharmaceutical industry from the patent system. TRIPs provides for increased patent protection, culminating in 2006 when all nations, including the less developed countries (LDCs), must comply with its provisions. A World Bank study found that merely establishing the institutions necessary for implementing the TRIPs Agreement would cost each country as much as $150 million, often exceeding their national health budgets.[41] For most of the LDCs, their citizens cannot afford expensive medications. In light of the AIDS crisis, they must use compulsory licensing as a way to offer cheaper medication.

Since the TRIPs strengthened patent protection laws, lack of access to HIV/AIDS drugs due to the price increase is an internationally recognised problem.[42] South Africa, India, Brazil and some East and Southeast Asian countries such as Thailand, China and Indonesia, where the AIDS crisis needs an urgent remedy, are the focus of international attention.

Article 8 of the TRIPs does permit the use of compulsory licensing to respond to any crises in public safety or health and to promote public interest in the areas of socio-economics and development. Many LDCs argued that compulsory licences should be granted when drugs that are capable of curing or hindering the disease exist, claiming that if, for example, the AIDS crisis in Thailand is a ‘national emergency’ Thailand should be able to grant compulsory licences legally under TRIPs. However, developed countries, specifically the US, interpreted the TRIPs Agreement narrowly. As argued by the Pharmaceutical Research and Manufacturers of America, the conditions in those LDCs are not ‘extremely urgent’.[43]

In fact, the US had threatened to impose trade sanctions on some governments such as South Africa and Thailand over pharmaceutical policies. In mid 1999, the US held firm in its support of strong intellectual property protection and the official government position was that the government did not support the compulsory licensing of patents. The US took this position because its economy is increasingly moving away from basic manufacturing and toward high-technology industries, including biotechnology and pharmaceuticals. However, by the end of 1999, the US began to change its approach.[44] The Clinton Administration declared in December 1999 that the US trade law related to intellectual property should remain sufficiently flexible to respond to legitimate public health crises. Subsequently it issued an executive order entitled ‘Access to HIV/AIDS Pharmaceuticals and Medical Technologies’, stating that in administering sections 301–10 of the Trade Act of 1974, the US shall not seek the revision of any intellectual property law that regulates HIV/AIDS pharmaceuticals or medical technologies. As of mid March 2001, the Bush administration has indicated that it would not reverse Clinton’s order, but has continued to oppose strongly the attempts by developing countries to relax patent rules under TRIPs.

The US strategies toward Africa shifted dramatically following the 11 September incident. Furthermore, domestic NGOs such as Médicins Sans Frontières which support lower costs for critical medicines as against higher profits for the pharmaceutical companies also produces considerable pressure. At the summit in Doha, Mr Robert Zoellick made a surprising compromise on affordable access to pharmaceuticals for poor countries facing medical emergencies, softening the US position on the LDCs’ adherence to the TRIPS.

In Doha, the ‘Declaration on the TRIPs Agreement and Public Health’ was established.[45] The declaration states that countries can use the TRIPs agreement to issue compulsory licences and also determine the grounds on which such licences can be granted. The LDCs are given time until 2016 (as opposed to 2006 presently) to introduce legislation for product patents. All countries are free to decide whether the domestic situation constitutes a ‘national emergency’ in health under the TRIPS agreement. Although the declaration was a political but not legal text, TRIPs Council formalised the declaration and approved a decision extending until 2016 the transition period during which LDCs do not have to provide patent protection for pharmaceuticals.[46]

The concession at Doha, of course, led to trouble in the US Congress, where Mr Zoellick faced a tough battle in winning TPA approval. Until congressional disapproval surfaces, however, this appears to be an unusual example of where the very substantial political power of the pharmaceutical industry is outweighed by American public opinion as advocated by domestic and international NGOs.

The implications of the Singapore-US Free Trade Agreement

The ongoing bilateral negotiation between Singapore and the US on free trade agreement (FTA) is actually in its final stage. The US currently has FTAs with Canada, Mexico, Israel and Jordan, while Singapore has FTAs with New Zealand and Japan, and recently concluded another with the four-members of the European Free Trade Association.

During the US-Singapore bilateral negotiation, 121 US groups and individuals have submitted comments to the US Trade Representative when the US surveyed the public on the proposed US-Singapore FTA. Among others issues, Singapore has been pressured by American interest groups to remove or liberalise existing barriers in the financial services as well as strengthen its intellectual property enforcement.[47] In addition, the US manufacturers fear that free trade could lead to job losses and a flood of cheap goods from South-east Asia.

Before the Bush Administration achieved TPA, it was concentrating its energies on bilateral free trade agreements, such as the one being negotiated with Singapore. The Bush Administration sought to use a series of bilateral agreements to secure market opening measures in those countries. They were also used to create broader pressure in other countries so they are more amenable to a new round of multilateral trade negotiations once the Bush Administration obtains TPA. As mentioned earlier, the fast track trade Bill has been signed into law on 8 August 2002. The Bush Administration now faces no obstacles in concluding the FTA with Singapore. The newly granted TPA will enable Ambassador Robert Zoellick to complete the FTA with Singapore, possibly by the end of 2002.[48]

Free trade or protectionism: which will it be for the Bush Administration?

Examining the Bush Administration’s recent actions affecting international trade produces conflicting conclusions. It does seem clear that when short-term politics collide with the trade liberalisation agenda, the former triumphs. The steel tariffs, the 2002 Farm Bill and the protectionist pressure coming from the textile and apparel industries all demonstrate the primacy of short-term political interests over longer term trade liberalisations.

On the other hand, the Bush Administration has taken important steps inconsistent with its domestic political interests, as evidenced by the long list of exemptions and exclusions from the steel tariffs, the new multilateral proposal for liberalising global trade in agriculture and the softer position on TRIPs enforcement. It is not entirely true, therefore, to say that the Bush Administration has abandoned free trade and open markets; it is just that they may have to give way to short-term political interests.

The congressional passage of the TPA Bill is a victory for American businesses interested in competing in the global market. It took eight years for the Congress to return to the fast-track authority and restore broad presidential authority on negotiating international trade issues. Now, armed with the TPA, the Bush Administration can press ahead with global trade talks, pursue regional pacts and bilateral FTAs.

The trends and prospects in the Coha Round: the impact of the passage of TPA on future US trade negotiations with Asian economies

‘Either progress or collapse’: is the bicycle falling down in Doha?

The price to pay at Doha for achieving the TPA

Apparently, the Bush Administration is a believer of the ‘bicycle theory’ of trade negotiations. In application of the theory, approaches and mechanisms have been sought by the Administration prior to the passage of the TPA. However, in the multilateral trading arena, the political concessions made by the Administration as part of the struggle to gain the TPA, including the tariffs on steel, the support for the Farm Bills, and the slowing down of the textile industry liberalisation, have eroded the US’s moral authority. Those actions by the Bush Administration will make it harder for the executive branch to make full use of the newly granted authority to negotiate at the Doha Round.

In essence, the entire WTO system is merely a set of moral proscriptions on conduct. The effectiveness of this multilateral system indeed depends on whether members have incentives to preserve their reputations as a free trade advocate rather than be labelled as a protectionist. Increasing the credibility and legitimacy of the most powerful trading nations such as the US is the foundation for building up such ‘moral restraints’. Recognising that a credible multilateral legal framework exists, WTO members would act to avoid being called a ‘rule-breaker’. It will be difficult for the US to persuade other member nations to tender into further WTO negotiations and abide by WTO provisions if the US is viewed as a flagrant betrayer of the WTO. The recent actions have robbed the US of the moral high ground on trade.

In the multilateral context, President Bush has to pay a high political and economic price for ensuring the Congress Members backed the TPA. The concessions made to the US domestic protectionists weakened the US’s position to encourage its trading partners to adopt more liberal trade measures.⁴⁹ The essence of the use of ‘soft power’, as Professor Joseph S Nye advocated, is that if the US represents values that others want to follow, it will cost the US less to lead the world. As a leader in trade liberalisation, the influence of the US in the multilateral forum should not depend on economic threats or retaliations, but on the US culture and values. The new WTO Doha Round is a test of world leadership, and the road ahead is bumpy for the US to mobilise support from other WTO members.

The prize to gain at Doha after the TPA struggle

The division of policy power between the executive and legislative branches has made it difficult for the Administration to act on its economic interests. Fast track serves as a means to bridge the separation of powers and to integrate trade policy and domestic politics. The newly granted authority provides the Administration the momentum it needs in order to get the multilateral negotiation conclusions implemented, enabling the US officials to promise, and to keep those promises in the Doha Round of multilateral trade negotiations.

The domestic movements toward protectionism in steel, farm products, and textiles and apparel may be designed to enhance the negotiating position of the USTR in the Doha Round of multilateral trade negotiations. By increasing protection in the US, the Bush Administration is giving Ambassador Zoellick more to concede in the multilateral negotiations. It also seems that in all trade negotiations, whether multilateral, regional or bilateral, the Bush Administration is setting the stage for an emphasis on trade reciprocity. In spite of the US dominance in global affairs, the economic power of US trading partners is too great to ignore. Foreign industries are so strong and US businesses and workers so vulnerable that the US can no longer maintain unilaterally open markets. Instead, the Bush Administration is likely to seek market opening concessions on a reciprocal basis, where the opportunities for US exporters of goods and services match the opportunities for foreign exporters in US markets.

Indeed, the US domestic protectionism is a means to lead to reciprocal liberalisation of international trade, by emphasising the concept of reciprocity – paying the price of liberalisation and reciprocating adequately to trading partners for more concessions. As commentators noted,[50] the central attributes of reciprocity are equivalence and conditionality (one nation acts only on condition that others do likewise).[51] In the case of US-Asia Trade, the US obtains no surplus for itself unless East and Southeast Asian economies reciprocate. The recent US domestic protectionism, therefore, will indirectly secure from its trading partners parallel commitments to liberalise their markets in steel, farm products and textiles.

Moreover, the Doha Round negotiation can help the US to direct the domestic political pressure elsewhere. Many WTO negotiation issues are actually ‘secondary disputes’ brought to the international level after the ‘primary conflicts of interests’ between domestic consumers and domestic and import-competing producers when the issues cannot be settled domestically.[52] In such ‘domestic policy nature’ issues, a multilateral regime would assist the US in overcoming protectionist pressure at home. The upcoming multilateral negotiation would provide US officials reasons to fend off such pressure. After all, the steel, agriculture and textiles producer community constitutes a considerably potent political force within the nation. The combination of their current plight and the mushrooming cost of government support programmes are heavy and growing financial burdens for the US. Doha could be the place to demonstrate that the US has been sustaining the agricultural, steel, and textiles sectors, which are far larger than international comparative advantage would justify.[53]

Asia’s possible responses

The possible extension of FTA: racing towards regional trading arrangements?

It is generally agreed that although FTAs may cause ‘trade creation’, which occurs when the removal of trade barriers leads to new trade among members that previously did not occur, it would on the other hand cause ‘trade diversion’, which occurs when the formation of a preferential trading arrangement merely diverts trade away from non-members to members.[55] Such trade (and investment) diversion is economically inefficient, resulting in increased levels of high-cost production within the region at the expense of lower-cost production from outside the region.⁵⁶

The basic GATT objective of increasing economic wellbeing can best be achieved under MFN principle. Departure from the MFN principle will cause a shift in trade from efficient suppliers outside the FTAs, to inefficient suppliers inside it, driven by the desire to take advantage of trade preferences.[57] It therefore undermines the spirit of multilateral trade.[58]

The debate on whether FTAs and WTO are complements or substitutes is beyond the scope of this paper. The phenomenon of countries racing toward regional trading arrangements, however, should be given particular attention when assessing the implications of the US trade policies affecting East and Southeast Asia. The potential effect of trade diversion is happening as evidenced from the increase in Free Trade Agreements (FTAs) in recent years. As of the year of 2001, there are 240 regional trading arrangements – 172 are in force and 68 under negotiations. A total of 80 came into being after the creation of WTO in 1995.[59]

As one commentator suggested, ‘if you cannot beat them, join them’.[60] Eventually, Singapore’s negotiations for a FTA with the US could lead to wider economic linkages between the US and Southeast Asia. However, regarding the possibility of an ASEAN-US FTA, in 2003 Mr Zoellick stated that it would be too premature to talk about road maps of FTA between ASEAN and the US since Vietnam, Cambodia, and Laos are in the very early stages of development and are not yet members of the WTO.[61]

Mr Zoellick’s statement may conflict with the major rationales for the FTA exception under the WTO/GATT framework. FTA shares the goals of freer world trade because it involves fewer countries and is more flexible. FTAs can be tolerated under the WTO because it can serve as a stepping stone to freer world trade.[62] Regional agreement may provide incentives for a few countries to reduce barriers first among themselves and later with others, as countries adjust to the reduction of protective trade barriers. Regionalism, to some degree, can be considered as a preparatory step and it is believed to help bring about global free trade sooner.

The governments of East and Southeast Asia should take seriously the possibility of negotiating a free trade agreement with the US. It is the Bush Administration’s policy to press forward with bilateral trade agreements as it waits for authority to undertake broader agreements. One of the principal advantages of a free trade agreement, as Canada and Mexico discovered when Canadian and Mexican steel producers were exempted from the 30% tariffs on imported steel, is that it is possible to put oneself within the protected area rather than outside it.

The potential positions and alliances in the WTO

As early as a 1996 WTO meeting in Singapore, developing countries were beginning to unite behind a rough agenda. In the 1999 WTO summit in Seattle, trade alliances were emerging among the countries of Africa, Asia and Latin America, with increasingly sophisticated demands for greater access to developed countries. The South Asian Association for Regional Co-operation (SAARC)’s common position at Doha[63] signals to the world that a consensus on the WTO agenda for future negotiations cannot be reached without taking into consideration regional groups. The united position taken by SAARC, which accounts for less than 1% of world trade, suggests that a larger united position of developing countries is possible at the WTO.[64]

East and Southeast Asian economies should act collectively to involve themselves more in future WTO meetings. As a large group, Asian countries’ representatives will have enhanced credibility and negotiating power to safeguard their countries’ legitimate interests. Instead of being responsive only to past problems, they should identify the issues of greatest relevance and significance for them and ensure those issues are placed before the WTO future negotiation agendas. There are some undeniably critical factors in a negotiation, such as who drafts the rules and what particular aspects of international trade the agenda covers. Technically, the negotiation agendas may favour one type or class of nations over another, and may allow some nations to be merely treated equally under the rules as established but not treated equally in the real world. During the Uruguay Round, there was a western agenda, driven by the US, that placed intellectual property issues at the forefront.⁶⁵ There was also a developed state agenda that focused on trade-related environment and labour standards[66] These were not priority concerns for the East and Southeast Asian Economies.

In the past, the deliberations at GATT meetings primarily reflected the interplay of trade policy interests of the EU and the US East and Southeast Asian concerns in the negotiations, as one commentator stated, was to pay ‘lip service to multilateral rules, but barriers in markets abroad have often been resolved through all kinds of short-term and less than transparent market-sharing mechanisms and arrangements’.[67] Due to the lack of intellectual preparation on trade policy issues, East and Southeast Asian economies have been unable to play more significant roles in international discussions of trade policies. They have tended to be passive observers and followers on most of those issues – standing at the receiving end and focusing on ‘damage limitation’.[68]

Through a collective position, Asian economies could play a significant role in the question of how the WTO will evolve during the 21st century.⁶⁹ An Asian economic integration, driven by self-interest would allow those economies to put their full voice together and express their need in future WTO negotiations. To cope with the protectionism of the US trade policy and safeguard their legitimate interests in the pressing trade disputes over the US steel safeguard measures, textile quantitative restrictions, strict patent protection, etc.

Conclusion

An examination of the Bush Administration’s recent actions suggests that its international trade policies produces conflicting conclusions. While advancing toward the destination of ‘free trade’, the government is pedalling backwards toward protectionism in some respects. A complex interaction between a commitment to free trade and the remarkable power of key members of Congress to influence trade policies is evidenced by the steel tariffs, the 2002 Farm Bill and the protectionist pressure coming from the textile and apparel industries.

When short-term politics collide with the trade liberalisation agenda, the former triumphs. If the political concessions made by the Bush Administration on the steel, agricultural and textiles sectors as part of the struggle to gain the TPA are the ‘necessary price’ to advance the case of free trade, it is now for the Bush Administration to prove that the TPA was worth it.

It took eight years for the Congress to return to the fast track authority and restore broad presidential authority on negotiating international trade issues. The newly granted TPA ensures that the ‘bicycle’ will be running, not falling down. Before the Bush Administration obtained TPA, it was concentrating on bilateral free trade agreements. Now, with TPA, it may go beyond bilateral and regional. Given that the US officials now have more to concede, negotiations on a reciprocal and mutually advantageous basis will definitely be emphasised during the Doha Round of multilateral negotiations.

The Bush Administration has been setting the stage for an emphasis on trade reciprocity. The Farm subsidies and steel tariffs will be used as bargaining chips that the US can give up in exchange for important concessions from the rest of the world. The domestic movements toward protectionism may be designed to enhance the negotiating position of the USTR in the Doha Round of multilateral trade negotiations. By increasing protection in the US, the Bush Administration is giving Ambassador Zoellick more to concede in the multilateral negotiations. The recent US domestic protectionism, therefore, will secure from its trading partners parallel commitments to liberalise their markets.

On the other hand, economic globalisation does not necessarily mean blanket prescriptions of global application. East and Southeast Asian economies must develop at their own pace to meet their circumstances and needs. They should act collectively to involve themselves more in future WTO meetings. As a large group, Asian countries’ representatives will have enhanced credibility and negotiating power to safeguard their countries’ legitimate interests. An Asian economic integration driven by self-interest would allow those economies to join their voices together and express their common need in the future WTO negotiations – to cope with the protectionism of the US trade policy and safeguard their legitimate interests in the pressing trade disputes over the US steel measures, textile quantitative restrictions, strict patent protection, and the emerging issues regarding genetically modified organisms, as well as labour and environmental standards.

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* Director, East Asian Legal Studies Center, University of Wisconsin-Madison, Volkman-Bascom Professor of Law, University of Wisconsin Law School. ** Associate Professor of Law, National Tsing Hua University (Taiwan) SJD 2000, University of Wisconsin, Madison. 1 Atan, C, ‘NAFTA-America’s way of joining pacific dynamic gravy train’ (1993) Business Times, 30 November. 2 ASEAN comprises 10 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. 3 ‘US agree on work program to boost trade and investment’ (2002) Kyodo News International Inc, Asian Economic News, 8 April. 4 ‘US business leaders urge unlocked ASEAN market potential’ (2001) Xinhua General News Service, 16 September.

[5] Ibid. US investment in ASEAN at the end of 2003 stood at slightly over US$88 billion, according to figures from the US Department of Commerce. However, in the first 11 months of 2003, US investment in China fell more than 24% from 2002.

[6] 2002 National Trade Estimate Report on Foreign Trade Barriers, www.ustr.gov/ reports/nte/2002/index.htm at 5 July 2002.

[7] In 1999, Mexico surpassed Japan to become the US’s second largest trading partner. From 1993 to 2000, US-Mexico trade grew at an annual average rate of 16%. See Trade Commission of Mexico Newsletter, www.mexico-trade.com at 12 August 2002.

[8]

US Department of Commerce.

[9] National Trade Estimate Report on reports/nte/2002/index.htm at 5 July 2002. Foreign Trade Barriers, www.ustr.gov/

[10] Ibid.

[11] (2002) The Economist, August (US edition).

[12] ‘The big MacCurrencies’ (2002) The Economist, 27 April, 76.

[13] Preeg, EH, From Here to Free Trade Essays: Post Uruguay Round Trade Strategy, 1998, Chicago: University of Chicago Press, 1–44.

[14] As explained in succeeding paragraphs, in three instances, Congress refused to give the Clinton Administration fast track negotiating authority. This was partly due to congressional resentment at being by-passed in the bail-out of Mexico in 1994–95.

[15] See Destler’s Review of the NAFTA Approval Process, 1997, Institute for International Economics.

[16] The Congress would have to vote yes or no on a trade pact within 90 days after the President submitted it.

[17] See Turtle Island Restoration Network v Evans, US Federal Circuit Court of Appeals, Nos 001569, 1581, and 1582 (21 March 2002). In examining the legislative history of the shrimp embargo legislation, the Court of Appeals for the Federal Circuit concluded that there seemed to be more concern with protecting the US shrimp industry than with protecting sea turtles. See also International Trade Reporter at pp 549–50 (28 March 2002).

[18] Shaffer, G, ‘International trade-WTO-quantitative restrictions-environmental protection-endangered species-US import ban on shrimp’ (1999) 93 AMJIL 507.

[19] It also diverts attention from the real political problems facing the United States: the need for coherent action to combat the multi-faceted threats of terrorism; the failure of the government to focus on middle class ‘entitlement’ programs, such as social security; a welfare dependent underclass now in its third generation of welfare dependency; and the inadequacies of our system of primary and secondary education.

[20] President George W Bush, ‘The President’s State of the Union address’, speech delivered at The United States Capitol, Washington, DC, 29 January 2002, www.whitehouse.gov/news/releases/2002/01/20020129-11.html at 21 October 2002.

[21] Joseph Nye, the Dean of Harvard’s Kennedy School of Government, is the leading proponent of ‘soft power’. He describes soft power as the ability to attract others to achieve the desired outcomes. The key to developing effective multilateral responses on security and trade matters is for the US to use ‘soft power’, which means getting others to want to act in a fashion consistent with US interests. Through effective use of soft power, the US will be able to fashion coalitions of power largely without cost to US policy objectives.

[22] It is clear that the uncertainty about US international trade policies have influenced governments. The Canadian Government agreed first to the Canada/US Free Trade Agreement and then to the North American Free Trade Agreement because of concerns over growing US protectionism. Similar concerns also have prompted many foreign based multinationals to locate production facilities in the US to guard against the protectionist threats.

[23] House Democratic leader Dick Gephardt of Missouri stated: ‘To ensure improved living standards at home and abroad, trade policy needs to enhance human rights, reaffirm worker rights and promote environmental protection.’

[24] Permanent Normal Trade Relation.

[25] The new measures exclude countries that have signed free trade agreements with the United States: Canada, Israel, Jordan and Mexico. Developing countries with limited exports to the United States are also exempted.

[26] South Korean steel exports to the United States totalled 2.01 million tons in 2001.

[27] There was no immediate reaction from China, which was also targeted by the tariffs announced by the Bush Administration.

[28] Moore, MO, ‘Steel protection in the 1980s: the waning influence of Big Steel?’, in Krueger, AO et al, The Political Economy of American Trade Policy, 1996, 73–132.

[29] 727 exemptions covered 3.2 million metric tons of steel, which was close to 25% of the 13.1 million metric tons of steel that had been included in President Bush’s March tariff order.

[30] At the Doha meeting of the WTO, Ambassador Zoellick agreed to put US anti-dumping laws on the negotiating table in the upcoming round of trade negotiations. The anti-dumping laws are hated by most of the world, but loved by uncompetitive industries and their congressional representatives in the United States. The anti-dumping laws are especially supported by the US steel industry – in fact, members of Congress from steel producing regions have played a major role in structuring the anti-dumping rules now in existence.

[31] See ‘Bush the antiglobalizer’ (2002) The Economist, 11 May, 14–15. 32 See ‘US proposes cuts in farm subsidies’ (2002) Financial Times, 26 July, 6.

[33] Cortes, C, GATT, WTO, and the Regulation of International Trade in Textiles, 1997, Aldershot: Ashgate Publishing Limited.

[34] Testimony: American Textile Manufactures Institute House Ways and Means Trade Uruguay Round of Multilateral Trade Negotiations, Federal Document Clearing House Congressional Testimony, 5 November 1993.

[35] United Press International, 3 August 1995.

[36] www.WTO.org/statistics/.

[37] Kaur, H, ‘Mexico’s problem so close to us, so far away from God’ (2001) Business Times, 13

August.

[38] ‘Rules on Textile Industry among most difficult to implement: minister, Agence France Press’ (2001) 11 November.

[39] India: Textiles may Deadlock Talks at Doha Meet, FT Asia Africa Intelligence Wire, 12 November 2001, available on LEXIS/NEXIS.

[40] As mentioned earlier, the even split between the Democrats and Republicans means that neither party has any clear mandate. The consequence is that swing voters in Congress have great powers to influence national and international issues. The example of Representative Robin Hayes clearly illustrates this power. In the House of Representatives’ vote on the new trade Bill, Representative Robin Hayes, a Republican from a textile district in North Carolina, agreed that he would vote in favour of the new trade Bill and TPA in exchange for the House Republicans agreeing to eliminate a rules of origin preference for textiles under the Caribbean Basin Initiative. The rules of origin preference is an important trade benefit for several of the small, poor countries in Central America and the Caribbean. The rules of origin preference also is consistent with US national trade policy of seeking to promote economic growth and democratic institutions through favoured access to the US markets. However, it is opposed by the textile industry and its elected representatives and, in the current political climate, there is a good chance that the rules of origin preference will be removed from US trade laws.

[41] ‘Poor nations may decide Doha meet outcome’ (2001) The Hindu, 10 November.

[42] Park, RS, ‘The international drug industry: what the future holds for South Africa’s HIV/AIDS patients’ (2002) 11 MNJGT 125.

[43] Nerozzi, MM, ‘The battle over life-saving pharmaceuticals: are developing countries being ‘Tripped’ by developed countries?’ (2002) 47 VLLR 605. PRMA stated: ‘In an environment of strong protection for patent rights, TRIPs provides limited exceptions where, in cases of extreme urgency, compulsory licensing may complement generally high levels of protection. Unfortunately, at this time, these conditions do not prevail in countries where compulsory licensing is practiced.’

[44] Collins, T, ‘The pharmaceutical companies versus AIDS victims: a classic case of bad versus good? A look at the struggle between international intellectual property rights and access to treatment’ (2001) 29 SYRJILC 159.

[45] ‘Agreement at Doha to soften TRIPs provisions’, FT Asia Africa Intelligence Wire (2001) The Hindu, 14 November.

[46] Paragraph 7 of the Doha declaration says: we agree that the LDCs’ members will not be obliged, with respect to pharmaceutical products, to implement or apply sections 5 and 7 of part II of the TRIPs agreement or to enforce rights provided for under these sections until 1 January 2016.

[47] ‘FTA: US groups Pressure for changes to S’pore laws’, Singapore Press Holdings Limited’ (2001) The Business Times Singapore, 3 July.

[48] After the TPA Bill passed, Mr Robert Zoellick said that the first trade agreement likely to be completed is with Singapore, possibly by the end of 2002. The US-Singapore FTA was launched on 16 November 2000. The final round was in Singapore between 11 and 17 November 2002, and the Agreement was concluded on 15 January 2003. Singapore guarantees zero tariffs immediately on all US goods, and the FTA ensures that Singapore cannot increase its duties on any US product. In services, the US-Singapore FTA provides the broadest possible trade liberalisation. Market access in services is supplanted by strong disciplines on regulatory authority.

[49] Nye J, JS., The Paradox of American Power, 2002, Oxford: Oxford University Press, 8–9.

[50] Swan, AC, ‘’’Fairness’’ and ‘’Reciprocity’’ in International Trade section 301 and the Rule of Law’ (1999) 16 AZJICL 37.

[51] Ibid.

[52] Petersmann, E-U (ed), International Trade Law and the GATT/WTO Dispute Settlement System, 1997, Dordrecht: Kluwer Academic Publishers, 86.

[53] Nau, H (ed), Domestic Trade Politics and the Uruguay Round, 1989, New York: Columbia

University Press, 204.

[54] Holliday, GD, ‘Effects on trade with non-member countries’ (1993) 3 Mex Trade & L Rep 13.

[55] Jacob Viner in his classic 1950 analysis of customs union casts serious doubt on the net economic benefit of creating a FTA or CU. He argued that the formation of a CU or FTA would result in both trade creation and trade diversion. See generally Steinberg, RH, ‘Antidotes to regionalism: respects to trade diversion effects of the North American Free Trade Agreement’ (1993) 29 Stan J Int’l L 315.

[56] Ibid.

[57] Jackson, JH et al, International Economic Regulations, 1995, 465.

[58] Several technical analyses have provided evidence that the framers of NAFTA disregarded the spirit of the MFN principle embodied in WTO/GATT. In addition to the strict rules of origin, the dispute resolution under NAFTA is also a controversial issue. See Thomure, JC, ‘The uneasy case for the North American Free Trade Agreement’ (1995) 21 Syracuse J Int’l L & Com 181.

[59] Choong, W, ‘S’pore FTAs will benefit Asean’ (2001) Singapore Press Holdings Limited, The Straits Times (Singapore), June.

[60] Ariff, M, ‘The US-ASEAN free trade area option: scope and implications’, in Schoot, JL et al, Free Trade Areas and US Trade Policy, 1989, 201–15.

[61] ‘US agree on work program to boost trade investment’ (2002) Asian Economic News, 8 April.

[62] Jackson, J, The World Trading System: Law and Policy of International Economic Relations, 1989, Cambridge: MIT Press, 141. See also Pescatore, P et al, Handbook of WTO/GATT Dispute Settlement, 1995, New York: Transnational Juris Publications, 26.

[63] Within the SAARC region, the Commerce Ministers endorsed a collective position rejecting calls for expanding the trade agenda and insisted that their concerns needed to be addressed upfront and in the first instance.

[64] See generally (2001) The Hindu, 28 August, www.hinduonnet.com/thehindu/2001/08 /28/stories/05282512.htm at 30 September, 2002.

[65] The fact is that, at the international level, the changes in the multilateral forum are the results of complex interactions between states. At the domestic level, the transformations in the WTO are the results of interactions between private businesses and governments. The main players in the Uruguay Round, therefore, were the US and the EU domestic export industries. The Uruguay Round negotiation agenda, therefore, was designed to protect best those industries.

[66] McRae, DM, ‘From sovereignty to jurisdiction: the implications for states of the WTO’, in Buchanan, MA et al, The Asia-Pacific Regime and the Expanding Borders of the WTO: Implications, Challenges and Opportunities, 1996, University of Victoria, British Columbia, Centre for Asia-Pacific Initiatives.

[67] Deardroff, A et al, The Emerging WTO System and Perspectives from East Asia, 1997, Washington: Korea Economic Institute of America, 259.

[68] Ibid.

[69] Ibid.