Trade deals: M.T.N.s or F.T.A.s?
Jan. 21, 2014
by Robbin Johnson
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On Dec. 9, 2013, trade ministers meeting in Bali, Indonesia, concluded a deal that consisted largely of a “trade facilitation” agreement to ease customs procedures. While any agreement represents progress under the 12-year-old Doha Round, it is far from clear that ministers can develop a further work program over the next year that will yield more substantive reforms. Multilateral trade negotiations (M.T.N.s), in other words, remain largely dormant.
Meanwhile, the North American Free Trade Agreement (NAFTA) celebrates its 20th anniversary in 2014. The Obama administration has launched a Trans Pacific Partnership (T.P.P.) negotiation with Pacific Rim countries that initially did not include its NAFTA partners Canada and Mexico and that appears to exclude China purposefully. And, it has initiated a Transatlantic Trade and Investment Partnership (T.T.I.P.) negotiation with Europe while rebuffing Canadian and Mexican participation.
Free trade agreements (F.T.A.s), in contrast to M.T.N.s, seem alive but very selective. What should the agricultural community make of all of this?
Reasons for optimism
The frustrations with M.T.N.s are real and well-grounded. The World Trade Organization (W.T.O.) and globalization have been emasculated by a variety of forces: continued reluctance to address agricultural protection; the Doha emphasis on universal consensus around any agreement; and the multiplication of parties to and points of view on M.T.N.s. Regional F.T.A.s have gained momentum because they largely bypass sticky domestic agricultural support issues, bring together “coalitions of the willing” and promise forms of integration that strengthen the export competitiveness of regional supply chains.
Though F.T.A.s typically minimize their agricultural content, U.S. agricultural interests stand to gain indirectly from them without paying much of a price in terms of reduced domestic supports. F.T.A.s may spur economic growth, which in turn raises per capita incomes and related demands for more animal protein, fruits and vegetables and fats and oils in the diet. Such income growth and dietary diversification will stimulate demand for exports of grains, oilseeds and animal products — land-intensive goods in which the United States enjoys a comparative advantage.
At the same time, regional specialization develops across supply chains and product mixes. Under NAFTA, for example, beef production has become more streamlined across Mexico, Canada and the United States, making North American beef production more globally competitive. And fruits and vegetables production has integrated to be more efficient and less seasonal.
It may be hoped that these income and integration effects would develop further, if the T.P.P. negotiations with selected Asian partners and the T.T.I.P. negotiations with Europe succeed. Approximately 40% of global trade would be swept up in them, spurring income growth and preferred access for U.S. farm products in some key markets.
Reasons for concern
There are several reasons for concern about this movement from global to regional trade negotiations. For one thing, agriculture presents some sensitive issues within both T.P.P. and T.T.I.P., with no assurance that those issues will be resolved favorably. Differences over bioengineered products and sanitary/phytosanitary standards are prominent examples, but so are many traditional market access issues involving high tariffs or non-tariff barriers.
Moreover, as trade liberalization progresses in manufacturing and services, the lack of progress in reforming domestic farm programs and border protections further isolates agricultural issues. Though the W.T.O. requires that “substantially all” trade must be liberalized within an F.T.A., there is a good chance that agricultural reform shortcomings will be overlooked in the enthusiasm for progress on other fronts.
A third source of concern is broader. Multilateral trade reform in manufacturing and services has promoted greater specialization along lines of comparative advantage in these sectors, spurring productivity gains and lifting millions out of poverty. The continuation of food self-sufficiency strategies — especially in developing countries — will retard their rates of economic growth and poverty reduction. It also leaves many of the chronically poor, hungry and malnourished vulnerable to supply disruptions or price spikes. In many ways the largest failure of Doha has been its inability to secure sufficient agricultural reforms to ensure greater food security and supply resilience.
A final concern is less economic than geopolitical. The commitment to multilateral trade reform that grew out of Bretton Woods was motivated in large part by a desire to avoid a balkanized world and competing spheres of economic and political influence. The effect of T.P.P. and T.T.I.P. could well be to re-create just such a disjointed world. Countries like China, Russia and India that get excluded from such arrangements may justifiably feel discriminated against. These and other more advanced developing countries also are pursuing F.T.A.s of their own.
The resulting complex web of tariff preferences, rules of origin and trade diversion is a potentially serious burden on and distortion of world commerce. And, if these F.T.A.s are not open to broader participation by those willing to assume their obligations — what some call “open regionalism” — the result could be dangerous rivalries.
Regional F.T.A.s need not turn out to be discriminatory, if they include provisions for openness. They need not turn out to exclude agricultural reforms, if negotiators press hard for them. But they create these risks. And where they do, they may purchase regional prosperity gains at the expense of rising global tensions. This is why it remains important to find ways forward on a substantive multilateral trade reform agenda.