ISSUES IN INTERNATIONAL POLITICAL ECONOMY FEBRUARY 2005, NUMBER 62

Robert Zoellick’s Tenure as U.S. Trade Representative Sidney Weintraub

Robert Zoellick was a particularly active trade representative, backdrop to Zoellick’s advocacy of pushing ahead with trade and his tenure in the job merits candid and fair analysis. Others negotiations; but push ahead he did. who have commented on his role have emphasized that he will be a hard act to follow. I share this judgment. Zoellick’s activism included a spate of bilateral free trade agreements, what are often referred to as preferential trade Perhaps his most significant accomplishment was to maintain agreements, that amplified discriminatory practices in world the momentum for trade negotiations at a time of considerable trade. (This subject was discussed in an earlier Issues essay domestic questioning of the benefits for the United States of a entitled “The Benefits and Costs of Trade Discrimination,” policy of open global markets. During the presidential number 57 of September 2004.) The recent report issued by campaign, Senator Kerry was critical of outsourcing. Many the consultative board for the director-general of the WTO, nongovernmental organizations (NGOs) made manifest their chaired by Peter Sutherland (“The Future of the WTO: opposition to globalization—whose bedrock is open trade and Addressing Institutional Challenges in the New Millennium”), investment—as being detrimental to U.S. workers because of states very strongly that the abandonment of the principle of the “unfair” practices of others. This antitrade sentiment came nondiscrimination, the most-favored-nation (MFN) practice to a head in the ministerial meeting of the World Trade embodied in Article I of the General Agreement on Tariffs and Organization (WTO) in Seattle in 1999 and was evident in the Trade (GATT), “matters profoundly to the future of the WTO. subsequent ministerial meeting in Cancún, Mexico, in 2003. The report notes that five decades after the formation of the President Bush’s acquisition of trade promotion authority GATT, “MFN is no longer the rule; it is almost the exception.” (TPA) in 2002—something that President Clinton was unable to achieve—was a significant accomplishment permitting The widespread use of preferential trading agreements (PTAs) meaningful trade negotiations to proceed; and Zoellick played cannot be ascribed solely to the United States. The Sutherland a major role in getting this passage. report states that the (EU) uses MFN tariffs in its trade with only 10 countries and entities, although most of There were other hurdles that Zoellick had to overcome. these are important traders: Australia; Canada; ; Hong Perhaps foremost was the growing U.S. trade deficit. Each Kong; China; Japan; Korea; New Zealand; Singapore; and the month seemed to bring a deficit larger than anything United States. The report notes further that 150 preferential experienced before. Trade negotiations during his tenure dealt trading agreements are now in force in the world, and another not just with trade, and to a great extent with investment, but 70 are estimated to be operational. also with labor and environmental conditions in partner countries, and even the limitation of capital controls (as in the Before Zoellick (BZ), the United States had PTAs with its two Chile and Singapore free trade agreements). The WTO NAFTA partners, Canada and Mexico, and Israel; the United decision categorizing the use of foreign sales corporations as a States now contemplates PTAs with 25 countries, either in prohibited export subsidy required Congress to alter U.S. tax effect pending congressional approval, or under negotiation. legislation and this soured many representatives on the value to When differences between Brazil and the United States the United States of the WTO. The pressure from the steel impeded the negotiation of a comprehensive free trade industry and legislators from steel states led to U.S. import agreement in the Americas (the Free Trade Area of the restrictions that were widely criticized at home and abroad Americas), the policy adopted by the U.S. Trade when imposed by those who favor open trade and then Representative (USTR) was to conclude PTAs with as many criticized again at home by more protectionist interests when hemispheric countries as possible. A similar policy is now they were eased. There was congressional criticism when being pursued with Middle Eastern and North African Muslim Zoellick agreed that the WTO negotiations had to include U.S. countries—a country-by-country (, Bahrain, Morocco, antidumping practices. These were all part of the complex etc.) structure of PTAs to eventually reach the goal of a Middle William E. Simon Chair in Political Economy • Center for Strategic and International Studies 1800 K Street, N.W. • Washington, D.C. 20006 • Tel: (202) 775-3292 • Fax: (202) 775-3199 • www.csis.org East free trade area (what is already being called MEFTA). assumes the job of deputy secretary of State. He has a good ear Zoellick accomplished the worthy goal of keeping trade for language usage to promote what he seeks. What is now negotiations going when it was difficult to do so. For those trade promotion authority (prior agreement by Congress that who believe in the bicycle theory of trade negotiations—keep proposed trade agreements involving congressional negotiating or restrictionism will set in—which I do, this was participation in the negotiating phase will be voted up or down an important accomplishment for which Zoellick will be when brought for ratification) was, BZ, known as “fast track.” remembered. But he will be remembered as well for the more Zoellick used the phrase “competitive liberalization” to justify ambiguous accomplishment of establishing a structure of simultaneous multilateral negotiations in the WTO, regionally PTAs that could well hinder future nondiscrimination in U.S. in the FTAA, plurilaterally (as with Central America), and trade policy. bilaterally in the PTAs on which the United States embarked under his leadership. The policy of conditional MFN, a way of discriminating against countries that did not sign trade agreements with the Beyond his facility with words and phrases, Zoellick was the United States, was discarded in the early 1920s because it most senior U.S. official who had regular give-and-take with became too costly politically to deal with countries that faced Latin American countries during the first four years of the trade discrimination. The interwar experience convinced world Bush administration. Indeed, he had contact with all regions economic leaders to make MFN the guiding principle of the under his policy of competitive liberalization. He contributed GATT when it came into being right after World War II. Both greatly to keeping alive the Round of the WTO and, if the United States and the EU have now returned to a policy of there are substantial tariff reductions globally as a discrimination. How can the world get back to the MFN consequence, this will reduce the level of discrimination from principle in the world trading system? the preferential agreements that the EU and the United States have concluded. There is no indication that The Sutherland report recommends that the members of the has any familiarity with international economic issues, whereas WTO now seriously consider a commitment to establish a date Zoellick has been living for the last four years with the when all their tariffs will move to zero. No import tariffs, no economics of trade negotiations and, before that, with foreign discrimination. In the Western Hemisphere, about the only way economic policy more broadly from his role as counselor of the to end the current mishmash of cross preferences and separate State Department under the administration of former president rules of origin in the multiplicity of PTAs is to conclude a free Bush. trade area of all or most hemispheric countries (an FTAA), with movement to zero duties and common rules of origin by a I have refrained from focusing on individuals, as opposed to certain date. Unfortunately, the framework of the FTAA does policy issues, in these monthly Issues commentaries. This not contemplate this. Zero duties could still be partly essay is an exception because Zoellick played a large role accomplished by a plurilateral agreement among many during these past four years in maintaining an open U.S. trade hemispheric countries that have discussed this, but this is policy. He also leaves a legacy with which the country and, uncertain. The Sutherland report also mentions the possibility consequently, the world will have to cope in the years and of plurilateral agreements outside the context of the WTO. In decades ahead. The impression I have is that other U.S. other words, getting back to MFN, in the Americas, in Europe, government agencies played a lesser role in setting U.S. trade in the world, is a stretch; and this complex problem is also a policy during his tenure than in the past, in part because of legacy to which Zoellick contributed in his years as USTR. Zoellick’s skills of persuasion and his ability to articulate his objectives. My expectation, based on how he made the most of Trade negotiations have been politicized under Zoellick’s his role as USTR, is that he will play a larger role in the guidance. Indeed, he made no secret in his public statements articulation of foreign economic policy than have other recent that he took political relations into account when choosing senior State Department officials. I think this articulation will countries for these negotiations. USTR’s foray in the Middle benefit the United States. East and the conclusion of trade agreements with countries that trade little with the United States is a vivid example of this proclivity. There is a downside to using trade agreements as a political rather than a trading tool; there is less export benefit Issues in International Political Economy is published by the to U.S. traders from an agreement with, say, Bahrain, than Center for Strategic and International Studies (CSIS), a private, with Brazil, and a bilateral agreement exists with the former tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS and not the latter. Trade and politics have always been does not take specific policy positions. Accordingly, all views, intertwined, starting with the establishment of the United positions, and conclusions expressed in this publication should States, but the repercussions are greater today when the United be understood to be solely those of the author. States helps set the pattern for world trade policy. © 2005 by the Center for Strategic and International Studies. Zoellick will bring much strength to diplomacy when he

William E. Simon Chair in Political Economy • Center for Strategic and International Studies 1800 K Street, N.W. • Washington, D.C. 20006 • Tel: (202) 775-3292 • Fax: (202) 775-3199 • www.csis.org