A Primer on Trade Agreements

A Primer on Trade Agreements ©aaronson1/3/2008 Susan Ariel Aaronson, George Washington University Elliott School and Graduate School of Business

Overview • What do trade agreements do? • How have they changed since 1934, when the U.S. first began the trade agreements program? • Are they deregulatory or reregulatory? • What do trade agreements include? • Why so many?

What do trade agreements do? • THEY REGULATE TRADE. In so doing, they facilitate trade. • Until the 19th century, MOST trade agreements regulated commercial policy—these agreements were treaties of navigation and commerce. They REGULATED how and when nations could apply border measures—tariffs, quotas, exchange controls. • But U.S. also signed agreements and made trade policies that addressed-non commercial policies. In 1807, both the U.S. and Britain banned trade in slaves. U.S. Russia, Japan and Great Britain signed the Fur Seal Treaty of 1911 to regulate hunting of seals.

Under What Authority? • Congress and Executive share authority to make trade, but Congress keep Executive on a tight leash. In 1934, Congress allowed Executive to negotiate bilateral trade liberalization (commercial policy only); in 1948 this was expanded to multilateral and in 1974, Congress granted Executive authority to negotiation non-tariff trade barriers-the stuff of domestic policy-health and safety standards, intellectual property rules, procurement rules etc…

Modern Trade Agreements Regulate how and when nations can apply instruments of Protection • Trade agreements delineate how entities may trade and how and when governments may put in place measures to protect consumers or citizens from injurious imports (toothpaste, toys). • Instruments of protection include domestic regulations such as procurement rules or health and safety standards as well as tariffs and quotas.

Trade Agreements Today: The Results • Trade agreements allow two or more nations with very different governance systems, funding, will and expertise to find common ground on the many rules (from health and safety standards to procurement policies) that can affect trade flows. • Thus, trade agreements increasingly affect domestic regulations that may, without intent, distort trade. This is the turf of Congress.

Trade Agreements Today • Although many people see trade agreements as deregulatory, trade agreements reregulate relations between countries. • They also allow U.S. interests to participate and influence foreign decision-making in areas related to trade (thus this includes labor conditions in Brazil or China or environmental conditions in Guatemala).

Trade Agreements Today • In so doing, they make foreign governments accountable not only to their citizens but to foreign market actors. In countries that have long been opaque and relatively undemocratic such as Saudi Arabia (which just joined the WTO), they create new norms of due process and transparency. • Thus they are essential tools to improve governance as well as stimulate economic growth.

There is one overarching trade agreement—the WTO • In 1994, the members of the GATT agreed to create a new international organization to govern trade and to include previous agreements under the GATT. The World Trade Organization, WTO, is a forum for trade liberalization. It includes agreements on trade in goods, services, intellectual property, investment measures, and other areas. The WTO has 151 member countries. It also has a dispute settlement body to settle trade disputes. • It does not include human rights or labor rights.

But US also participates in some 400 other agreements • Some came before GATT (in 1890s, U.S. negotiated reciprocal trade agreements, in 1934, bilateral.) These agreements have not been repudiated. But they must conform with GATT/WTO rules. • Beginning with U.S.-Israel Free Trade agreement, U.S. began to negotiate bilateral and regional trade agreements including NAFTA, Australia, Singapore, Chile, CAFTA. • Bush Administration made bilaterals a centerpiece of trade policy.

Bilateral trade agreements • Recent bilateral trade agreements include chapters on investment, intellectual property (stronger than WTO) and enforceable commitments on labor rights and the environment. • The Chile and Singapore Free Trade Agreements contain provisions allowing the temporary entry of business professionals into the other party, to facilitate trade in services. • Greater attention to human rights environmental spillovers of the agreements but many argue still inadequate, • Some of the agreements were coupled with capacity building to ensure that U.S. trade partners could meet their commitments

A Primer on Trade Agreements