Business / The Move Towards Bilateralism And Regionalism In The United States Of America

The Move Towards Bilateralism And Regionalism In The United States Of America

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Autor:  anton  19 November 2010
Tags:  Towards,  Bilateralism,  Regionalism,  United,  States
Words: 791   |   Pages: 4
Views: 292

This essay will explain the move towards bilateral and regional trading agreements by the United States (US) during the past five years. In order to fully explain the underlying reasons for the policy shift, brief historical explanations and examples will also be included. It consists of two of two main sections, the first will explain, from a theoretical perspective, the surge of PTAs, the advantages and disadvantages of bilateral, regional and multilateral trade negotiations. The second part will focus on why there has been a radical shift in US policy being the driving force behind multilateral negotiations to implementing a growing number of bilateral and regional trading agreements.

The other main area of trade liberalisation is multilateral trade negotiations, which mainly take place under the umbrella of the World Trade Organization (WTO), previously General Agreement on Tariffs and Trade (GATT). Since the GATT’s creation in 1947, multilateral trade negotiation rounds have lowered barriers to trade and created the WTO, which has 148 member nations. Central to the WTO is the Most Favoured Nation (MFN) treatment principle stating that any benefit given to one member shall automatically and unconditionally be given to all members (GATT article I). However, most PTA’s are between WTO members, and almost every nation (with the exception of Taiwan, Hong Kong and Mongolia) that is a member of the WTO has also some form of PTA or is in the process of negotiating one (WTO, 1995a; Lloyd, 2002). The justification for PTA’s within the WTO lies in Article XXIV, which allows PTA’s, but only if they eliminate barriers to substantially all the trade between the members and the agreement does not increase protectionism, on the whole, against non-members

Whereas there is an ongoing discussion whether or not nations should pursue PTA’s, it is outside the scope of this essay to take a stance on the issue. However, it would be useful to briefly address the main arguments of the debate. Proponents of PTA’s argue that they are building blocks to multilateral trading agreements because they result in welfare gains from free trade (Sumners, 1991) and Perroni and Whalley (1996) argue that they do not increase monopoly power of newly formed PTAs and they do not necessarily lead to higher external tariffs. Further, PTAs tend to show results quicker and in addition, the results are more tangible. This means that it is easier for politicians to convince their local constituency of the benefits a potential PTA would have, thus ensuring electoral support for their approval of the agreement (Altieri, 2003). One of the main reasons why PTAs tend to show results faster than multilateral agreements is that they are easier to negotiate and implement. This has especially been seen lately with the failure of the Seattle and Cancun Ministerial Meetings of the WTO over agricultural subsidies and market access.

Bagwell and Staiger (1997) argue that whereas countries experience an initial multilateral honeymoon when joining a PTA, this is mainly due to the current links to non-members and the delayed implementation period of the PTA. Tensions are further reduced as the new member is still dependent on non-members and the non-members are aware that the new member’s market power will increase, thus they do not want to initiate a trade war. Once the agreement is fully implemented and members are enjoying increased market power, due to trade diversion and increased market power custom unions cannot sustain low external tariffs

The first bilateral PTA the US negotiated was with Israel in 1985, but the underlying reasons for this agreement was not trade benefits, as Israeli trade does not even amount to 3 percent of US annual trade (EIU, 2005). However, it was argued that Israel was an isolated strategic alley, and Israel also have a highly influential political lobby in the US, so the PTA was more an Israeli reward (Rosen, 1989; Feinberg, 2003).

As mentioned earlier, although the agreement is called a Free Trade Agreement, there are several significant sectors that are exempt or restricted from the agreement, such as agricultural areas like sugar (USTR, 2005). By pursuing this route, the US can circumvent dealing with Brazil, who have significantly more bargaining power due to their size, and have been sceptical to the FTAA, until they have enough agreements in place to ensure that the only option Brazil have is to comply with the standards already implemented (Altieri, 2003). It is worth noting that the last agreement, CAFTA was approved by the slimmest margins in the US Congress, 217 for versus 215 against (Stavanger Aftenblad, 2005). However, as the congress has approved the US president with Trade Promotion Authority (TPA), or ‘fast-track’ they can accept or reject proposals, but not amend any aspect of them, which will be discussed next (Altieri, 2003).

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