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US Should Look South, Not Far East, on Trade Pacts – Shannon O’Neil / Bloomberg

  • Many economies in the Americas already have bilateral free trade agreements with Washington, offering a stronger base for nearshoring, deeper integration and higher standards.
For more and better trade, Tio Sam should look south.
For more and better trade, Tio Sam should look south.  (Bloomberg)

By Shannon O’Neil

The Indo-Pacific Economic Framework for Prosperity (IPEF), a 14-country effort to deepen economic ties with Asia, has become the Biden administration ’ s signature trade initiative. Yet as regional agreements go, the Americas Partnership for Economic Prosperity (APEP), its Latin American complement, holds greater potential. If the US government truly wants to shift trade and secure supply chains, it should zero in on the economies closer to home.

Launched within two weeks of one another, the two trading and investment frameworks are both responses to China’s play for global influence. Both bring together a good number of countries: IPEF counts 14, including Australia, India, Indonesia, Japan, South Korea, Singapore, and Vietnam, and APEP numbers 11, among them Canada, Chile, Colombia, Mexico, Panama, and Peru. The negotiations focus on similar issues: securing supply chains, decarbonizing economies, setting digital rules and other worthy goals. Each allows participants to pick and choose their commitments, many of which are voluntary, setting norms rather than enforceable policies. Both are mum on the more traditional elements of trade agreements such as tariffs and market access, thereby keeping Congress out of the mix — another example of what scholar Kathleen Claussen calls “trade executive agreements.” 

To be sure, there are differences. APEP looks to expand financing for regional infrastructure and other projects, something presumably the IPEF nations have an easier time of on their own. It explicitly leans into migration, education, and other social issues, incorporating a public administration element absent on the other side of the Pacific.

The energy and effort being put behind them diverges too. Over the last 12 months the US government has held four formal rounds of negotiations and dozens of other senior level meetings to push IPEF forward. In contrast, it took until January 2023 to figure out who would take part in APEP, and formal negotiations have yet to kick off now a year in.

Yet APEP has a better chance at shoring up geostrategic alliances through deeper economic ties. The main reason is the starting point. Few of the Indo-Pacific partners have free trade or robust investment agreements with the United States, while all but one of the Western Hemisphere participants do. That matters.

While National Security Advisor Jake Sullivan argues these efforts are “a 21st century economic arrangement designed to tackle 21st century economic challenges,” it’s hard to imagine how this will work with tariffs and other barriers still in place, and without investment protections and other clear ground rules that level the playing field. Without these basic commercial building blocks, the kinds of things front and center in traditional free trade agreements, it’s hard to jump into thornier issues of higher labor standards, environmental advances, anti-corruption initiatives, supply chain clusters and more. 

Moreover, China has preempted the US with its own trade and supply chain agenda in the Indo-Pacific. Twelve of the 14 IPEF countries are part of the Regional Comprehensive Economic Partnership Agreement, which by zeroing out most tariffs, simplifying customs, and aggregating rules of origin requirements encourages regional production in ways that the announced “IPEF Supply Chain Council” and “IPEF Supply Chain Response Network” will find hard to match. 

China has made less progress in the Western Hemisphere. Sure, it has signed free trade agreements with four APEP members: Chile, Costa Rica, Peru, and, most recently, Ecuador. Still, these are light on substance, focused on reducing tariffs and reinforcing the current commodities out and manufactured goods in trading dynamic. The US maintains an advantage in terms of more comprehensive ground rules, a longer history of investment, and more balanced and higher value-added trade.

Right now, the region is willing to engage with the Biden administration. Leaders from across the political spectrum joined last January; but they need something to negotiate. The agenda should include labor, environmental, and transparency guidelines, financing to digitize and green economies (utilizing the Inter-American Development Bank and other international financial institutions to crowd in private investment), and support for creating regional industrial and commercial clusters.

In the end, whether “choose your own adventure” voluntary trade frameworks will do much of anything is a real question. As Senator Ben Cardin warned US Trade Representative Catherine Tai during a Senate Finance Committee meeting, “You can get all the commitments you want from a country that they’re going to do all these good things on anti-corruption…. They don’t do it. And there’s no enforcement because you don’t have any trade sanctions that you can impose, which is the way that we enforce these agreements.”

If US ambitions for its economic foreign policy go beyond virtue signaling, it should focus on countries where rules and enforcement tools already exist. Cue the Western Hemisphere. But the US needs to close the deal before the willingness of the current group of Latin American leaders fades, either as elections bring new faces or because Washington’s lack of focus and prioritization frustrates those that remain

bloomberg.com 06 15 2023

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