[Ip-health] USTR letter to OMB on "competitive liberalization" through multiple FTAs

[Mike Palmedo]

The full text of the letter from Robert Zoellick to David Walker,
Comptroller of the United States, is here:
http://www.ustr.gov/releases/2003/12/2003-12-03-letter-gao.pdf

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December 3, 2003

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When the Bush Administration set out to revitalize America=92s trade
agenda almost three
years ago, we outlined our plans clearly and openly: We would pursue a
strategy of
=93competitive liberalization=94 to advance free trade globally, regionally=
,
and bilaterally. By
moving forward simultaneously on multiple fronts, the United States can:
overcome or
bypass obstacles; exert maximum leverage for openness; target the needs
of developing
countries, especially those most committed to economic and political
reforms; establish
models of success, especially in cutting-edge areas; strengthen
America=92s ties with all
regions within a global economy; and create a fresh political dynamic by
putting free
trade on the offensive.

Careful selection of FTA partners is a key part of this design -- but as
a part, it must be
understood in the context of the overall strategy. As GAO rightly
explains in its report,
the selection process cannot be a mechanical one in which we choose only
the most
eager, or the largest, or the friendliest countries as partners. Rather,
we need to consider
a range of factors, including how an FTA fits with our larger goal of
advancing free trade
around the world. Your report outlines the criteria we examine.

At its most basic level, the competitive liberalization strategy simply
means that America
expands and strengthens its options. If free trade progress becomes
stalled globally --
where any one of 148 economies in the World Trade Organization (WTO) has
veto
power -- then we can move ahead regionally and bilaterally. If our
hemispheric talks are
progressing stage-by-stage, we can point to more ambitious possibilities
through FTAs
with individual countries and sub-regions. Having a strong bilateral or
sub-regional
option helps spur progress in the larger negotiations. The recent
disappointment in
Cancun provides a case in point. A number of the =93won=92t do=94 countries
that frustrated
the =93can do=94 spirit of Doha are now rethinking the consequences as the
United States
vigorously advances FTAs around the world.

Pathways to Greater Trade

Competitive liberalization offers countries within regions a
step-by-step pathway to
greater trade reforms and openness with the United States. Both the
President=92s
Enterprise for ASEAN Initiative and his plan to work toward a Middle
East Free Trade
Area start by helping non-member countries to join the WTO,
strengthening both the
global rules-based system and countries participating in it. For those
more advanced, we
negotiate Trade and Investment Framework Agreements (TIFAs) and Bilateral
Investment Treaties (BITs). We employ these customized arrangements to
resolve trade
and investment issues, improve performance in areas such as protecting
intellectual
property rights and strengthening customs operations, promote business
ties, analyze the
possibilities for an FTA, and prepare the capacity to negotiate an FTA.
Finally, we may
negotiate a wide-ranging, state-of-the-art FTA that will help establish
a model for a
region and incentives for neighbors. With this graduated, stepladder
approach, we can
engage virtually every country interested in working with us, and more
importantly, we
create a healthy dynamic in which countries compete to become fuller
members of the
trading system and better partners of the United States.

For example, the President launched the Enterprise for ASEAN Initiative
in October
2002. With our newly completed Singapore FTA serving as a benchmark for wha=
t
ASEAN nations may achieve, we are helping those nations not part of the
WTO to join.
Cambodia recently acceded and Vietnam is working toward WTO membership.
We are
using TIFAs with the Philippines, Indonesia, Brunei, and Thailand to
spur further
progress. We are working with private groups to help our respective
publics understand
the value of improved trade and to lay the groundwork for future
agreements. As a result
of these efforts, the President announced our intention to initiate
negotiations for a
comprehensive, state-of-the-art FTA with Thailand early in 2004.

Our Middle East Free Trade Area initiative offers a similar pathway for
the Mahgreb,
Gulf states, and the lands near Israel. We are making progress toward
bringing Saudi
Arabia into the WTO. We have TIFAs and BITs throughout the region and
several more
in the works. We are working to complete an FTA with Morocco this year, to
complement our FTAs with Israel and Jordan, and we will begin FTA
negotiations with
Bahrain early in 2004. It is our aim that within ten years these
initiatives may be
integrated to form a region-wide free trade area.

In Africa, the African Growth and Opportunity Act (AGOA) is creating
tangible
incentives for commercial and economic reform as it provides enhanced
access to the
U.S. market for products from 38 eligible sub-Saharan nations. Our FTA
negotiations
with the five countries of the Southern African Customs Union (Botswana,
Lesotho,
Namibia, South Africa, and Swaziland) will create a first-of-its-kind
agreement with the
continent, build on AGOA=92s success, and show other Africans that the
United States is
committed to helping those who are working toward reforms and open trade.

For Latin America, we are pursuing dual tracks. We are strongly
committed to creating a
comprehensive and ambitious Free Trade Area of the Americas (FTAA). At
the same
time, we are pursuing multiple FTAs that will complement NAFTA and our new
agreement with Chile. We are aiming to complete the Central America FTA
negotiations
in December, and we expect to integrate the Dominican Republic into that
agreement in
2004. We would then move forward with Panama, Colombia, Peru, Ecuador, and
Bolivia. Together, these agreements would open up over two-thirds of the
hemisphere=92s
non-U.S. GDP to free trade across a comprehensive, modern agenda. At the
same time,
our aim is to open the markets of all the Americas, while assisting
development and
democracy in places as different as Caribbean islands and the large
economies of
Mercosur.

South Asia remains a challenge, but we are looking hard for
opportunities. In particular,
Sri Lanka, with which we have a strong TIFA and relationship in the WTO,
may be a
promising FTA candidate for the near future.

Finally, our strategy seeks a mix of developing and developed nations.
Our negotiations
with Australia will create a top-quality FTA with a large industrial,
service, and
agricultural economy of growing promise and set a strong standard for
future agreements.

As part of our larger strategy, deeper trade and economic ties with our
FTA partners are
producing substantial results in their own right:

=B7 Our new and pending FTA partners, if considered together, would constit=
ute
America=92s third largest export market and the sixth largest economy in
the world.

=B7 Our current and pending FTA partners in the Americas encompass
two-thirds of
Western Hemisphere=92s GDP (excluding the United States.).

=B7 These FTAs are state-of-the-art, breaking new ground and setting high
standards.
Unlike the many FTAs around the world, centered largely on tariffs for
goods and
perhaps some agriculture, the U.S. agreements address services, investment,
intellectual property rights, public transparency, government
procurement, and
labor and environment issues.

=B7 Our FTAs enhance regional integration. When countries negotiate with
us as a
group (e.g., in CAFTA and the Southern Africa FTA), they also commit to fre=
e
trade with each other to their great mutual advantage. Botswana, for
instance, is
both a successful multiparty democracy and a well-run economy, but it is
hindered by its small size. As part of the larger market formed by the
Southern
Africa FTA, Botswana will have far better prospects for investment and
becoming
a hub for service providers. The five small Central American democracies ar=
e
more likely to attract investment, create jobs, and increase
competitiveness if they
are integrated with one another and the United States.

=B7 Our free trade agreements encourage sectoral reform and advance
development
agendas. Morocco, for example, has been hindered by an agricultural economy
shaped by the economics of the Roman Empire. Its FTA with the United States
will help it adjust to a productive and prosperous role in the modern
world. Chile
had labor laws dating to the Pinochet era. During our FTA negotiations,
those
laws were completely reformed. Bahrain will use its FTA with the United
States
to help further its stature as a successful post-oil and gas economy in
the Persian
Gulf.

In summary, our FTA selections are part of larger, multifaceted
strategy. Criteria can aid
in making the selections of FTA partners, but the execution of the
strategy requires the
careful judgment of policymakers in close consultation with Congress and
private sector
stakeholders. Ultimately, we need the support of Congress to pass these
agreements.

Your report notes that =93certain Members of Congress have urged USTR to
give greater
priority to economic and commercial considerations in selecting future
FTA partners.=94
That is true, although in our experience when Members of Congress or the
private sector
mention other countries as FTA candidates, including large markets
beyond Canada and
Mexico, we often find those countries are unwilling to enter into FTA
talks with us --
usually because they want to continue to protect their agriculture
market. If one does not
count the EU-25, Japan, and Korea -- which have been unwilling to
negotiate FTAs with
us that open agriculture markets -- and China, which just entered the
WTO, our current
and announced FTA negotiations total 73 percent of America=92s remaining
export markets
and 69 percent of the United States=92 two-way trade. In general, we agree
with your
assessment that =93Few Members of Congress have openly questioned choices
of FTA
partners to date, and those that have still expressed broad support for
the =91competitive
liberalization strategy.=92=94

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