fta

NAFTA 2.0: The Best Trade Agreement Ever Negotiated (Except for All of the Others)

The text of the new “United States-Mexico-Canada Agreement” was released last Sunday night, a few hours after I had spoken at an event in Birmingham, England about the virtues of “The Ideal U.S.-U.K. Free Trade Agreement.” To borrow from the late Sen. Lloyd Bentsen: I know the ideal free trade agreement; USCMA, you’re no ideal free trade agreement.

The ideal free trade agreement is one which accomplishes maximum market barrier reduction, enables maximum market integration, forecloses governments’ access to discriminatory protectionism, and obligates the parties to refrain from backsliding.

As explained in the paper:

The ideal free trade agreement provides for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible. It should limit the use of so-called trade remedy or trade defense measures. It should open all government procurement markets to goods and services providers from the other party. It should open all sectors of the economy to investment from businesses and individuals in the other party. It should open all services markets without exception to competition from providers of the other party. It should ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations…

…[T]he ideal FTA must also include rules governing e-commerce. Digital trade — data flows that are essential components in the provision of goods and services in the 21st century — must remain untaxed and protected from misuse and abuse. Rules that prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services should be included, and obligations should be imposed on entities to ensure data privacy, consistent with the requirement that data flow as smoothly as possible.

When border barriers come down, the potentially protectionist aspects of regulation and regulatory regimes become more evident. Certainly, when businesses have to comply with two sets of regulations to sell in two different markets, it limits their capacity to realize economies of scale and reduces their capacity to pass on cost savings in the form of lower prices or reinvestment.

If those regulations are comparable when it comes to achieving the same social outcomes — consumer safety, product reliability, worker safety, environmental friendliness — there may be scope to require businesses to comply with only one set. A regulatory cooperation mechanism to promote mutual recognition would be a useful innovation, as a means to reducing business costs (provided no deep cultural aversion or science-based reason exists for considering one regulation better than the other and worth the greater cost).

Finally, the rules of the ideal FTA must be enforceable. What’s the point of a trade agreement if its terms are just suggestions? To make sure governments keep their promises, trade agreements should have a binding and enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Here’s how the USMCA stacks up to the ideal free trade agreement, which:

  • Would provide for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible.

In USMCA, most goods trade will continue to be tariff-free (the NAFTA status quo) under the new agreement, and barriers to certain agricultural products will be reduced as well. Moreover, the value thresholds for importing goods without having to pay any duties have been raised in Mexico and Canada, which will benefit small businesses, disproportionately, as they tend to conduct a larger share of transactions online.

(Conclusion: Criterion is almost met).

  • Would limit the use of so-called trade remedy or trade defense measures.

Trade remedy laws give domestic industries recourse to trade restrictions when they can demonstrate injury caused by “dumped,” subsidized, or substantially increasing imports. These laws are prone to misuse and abuse and become loopholes through which the benefits of trade barrier reduction achieved in the agreement can be quickly rescinded.  

In USMCA, no restrictions on the use of antidumping, countervailing duty, or safeguard measures are made. Rather, the long arm of the Safeguard law extends further under the revised deal by making it more difficult for Canadian and Mexican exporters to be excused from prospective safeguard tariffs. Moreover, the failure of the United States agreeing to blanket exemptions for Canada and Mexico from prospective tariffs on imported automobiles under Section 232 of the Trade Expansion Act of 1962 and the failure of the United States to remove the existing Section 232 tariffs on Canadian and Mexican aluminum and steel—thereby enshrining the view of Canada and Mexico as threats to U.S. national security—is in extremely poor taste, violates the spirit of a trade agreement, and reflects an absence of understanding of the meaning of being a good trade partner. 

(Conclusion: Criterion worse than unmet.)

Read Cato Trade’s Comprehensive Analysis of the Trans-Pacific Partnership

The Trans-Pacific Partnership trade agreement between the United States and 11 other countries was reached late last year, signed by the parties earlier this year, and now awaits ratification by the various governments. In terms of the value of trade and share of global output accounted for by the 12 member countries, the TPP is the largest U.S. trade agreement to date.

RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.

Without Free Trade, U.S. Consumer Interests Best Represented by EU Negotiators in the Transatlantic Trade Talks

Today marks the official commencement of the much anticipated Transatlantic Trade and Investment Partnership negotiations in Washington. An eventual agreement could eliminate tariffs and curb superfluous rules and regulations that impede commerce and raise costs for businesses and consumers in the world’s largest economies. Those prospects make the effort worthy of our attention and, possibly, our support, but one thing should be clear from the outset: the negotiations are less about free trade than they are the latest rejection of its virtue.

Among economists, businesspeople, and policy scholars, there is near unanimity that international trade is a good thing. Many even call themselves “free traders.” But self-identifying as a free trader in Washington usually means that one supports free trade over there (in other countries), and not necessarily over here, in the United States. What passes for free trade advocacy these days is endorsing the USTR’s official negotiating objectives, which condition liberalization at home on the foreign market access gains obtained for U.S exporters. And that ain’t free trade.

U.S.-EU Free Trade Agreement? A Pep Talk or Overhaul at USTR Is the Place to Start

In its first 49 months, the Obama adminstration has paid lip service to trade liberalization. There have been the announcements, the platitudes, the initiatives, the task forces, and the interminable negotiations, but no new trade agreements. Not one. Still, in his State of the Union speech tonight, the president will offer assurances that his rhetorical commitment to trade liberalization remains steadfast, when he announces grand plans to pursue a trans-Atlantic free trade deal. Of course, rhetorical commitments and pursuing free trade don’t exactly get the job done.

Whether anything comes of prospective U.S.-EU trade negotiations or the still-brewing Trans-Pacific Partnership negotiations depends, more than anything else, on whether President Obama believes his own rhetoric. Of course, actions speak louder than words and on that score things don’t look especially promising.

Exhibit A is the Office of the U.S. Trade Representative, where employee morale has gone from bad to worse. In a 2012 OPM survey of 29 small federal agencies published in a report titled “Best Places to Work in the Federal Government,” USTR ranked dead last. The results showed employee dissatisfaction with their jobs, their organization, and their senior leadership.

The overall weighted index score of 32.7 (out of a possible 100) in 2012 is the latest point in a continuous and steep decline in satisfaction, which was 74.2 in 2009, 57.4 in 2010, and 47.7 in 2011. The sub-index for “Effective Leadership - Senior Leaders” declined from 71.2 to 49.7 to 37.5 to 18.6 over those same four years. Only 17.7 percent of the 101 USTR respondents said they had a high level of respect for their organization’s senior leaders, while 62.1 dissented from that view. Only 12.8 percent of 102 USTR respondents said their organization’s leaders generate high levels of motivation and commitment in the workforce, while 67.3 dissented.

These are some profound rebukes of U.S. Trade Representative Ron Kirk, and by extension, President Obama.

TAA Reversal on Grand Bargain

O’Grady on the US-Colombia FTA

Mary Anastasia O’Grady has an excellent article in today’s Wall Street Journal on the Obama administration’s failure to push the U.S.-Colombia preferential trade agreement.  She rightly points out that the terms of the agreement should be especially favorable to mercantalists, since the agreement would see no reductions in the tariffs the United States places on Colombian goods – most of which already enter duty-free under the terms of the Andean Tr

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