USTR: ĎBilateral agreements can be trailblazersí
Thomas Cromwell

With free trade pacts a high priority of the Bush Administration, countries have been lining up to negotiate agreements with the United States that will give them duty-free access to the rich American market. In a recent interview with DiplomaticTraffic.com, Shaun Donnelly, Assistant US Trade Representative for Europe and the Middle East, discussed the Administrationís thinking on free trade agreements, how they relate to World Trade Organization agreements, and how countries can qualify for them. Excerpts from the interview follow.

The departure of Rob Portman
Ambassador Portman is an immensely talented guy with great attributes and credibility. He brought that to USTR (United States Trade Representative). The president saw that as something he needed in the Office of Management and Budget, which is a critical position in the administration, for all economic policy, and far beyond economic policy.

Ambassador Susan C. Schwab who has been nominated to replace Ambassador Portman has been at his right hand throughout the last six months and is eminently qualified to carry on. She has the full support of the President, and we expect not to miss a beat in that regard. US trade policy, our agenda, our commitment to it, the presidentís commitment to it, are unchanged... we will just have an extra friend at the White House in Ambassador Portman.

The difficulty of getting FTAs through Congress
Trade has always had some controversy around it. Back in the 19th Century there were differences between the north and the south, about tariffs and between the industrial and agricultural areas. In presidential elections in the second half of the 19th Century, tariff questions were front-burner issues that presidents won or lost elections on. These have always been major policy issues.

Doing the right thing on trade is not easy. One of the things that Ambassador Portman has really brought to USTR has been a strong desire to try to build a bi-partisan, or non-partisan, approach towards trade. He thinks it is critical, both in the short run in terms of getting particular agreements approved by Congress, but also over the longer term for us as a country to have trade be more of a non-partisan issue. It isnít easy but we are going to continue working in that regard, as he moves on.

Which countries are considered for FTAs
We want to have an active trade dialog with every country in the world that is prepared to do that with us. For some countries that means doing a full-scale free trade agreement. Others are either not so far along or have a different approach on agriculture or foreign investment which makes a full free trade agreement not practical.

With many countries we are not negotiating with we have something called a Trade and Investment Framework Agreement (TIFA). It is a process where about once a year we get together and review our trade agenda, what we can do in specific sectors. In many countries, our TIFAs focus on how we can help get the country into the World Trade Organization (WTO). We have found that for many countries that is a first step towards international rules and processes in trade.

In terms of countries with which we are negotiating a free trade agreement, there is not an official process to get selected, but we are open to discussions with any country that is seriously interested. But we are doing to do our own review and figure out how we prioritize which countries we think are the most ready, which are highest priority for us. But at USTR we are open to a dialog with any country to try and figure out how we can advance that.

Is an FTA a reward for friends of the US?
One factor we certainly take into account is the general state of relations between the US and a given country. We want to have our trade policy in line with our broad foreign policy. Also, if we are seriously going to negotiate a free trade agreement we are going to have to get it approved by the Congress, so perceptions of a country play in that regard. I would disagree if free trade agreements are just things that are given out to countries that are supportive of US foreign policies. Some of our best friends we are not doing a free trade agreement with. We have to see that a country is really prepared to accept the kind of high-standard, comprehensive agreement that we do.

We are not allowed by the Congress to do a so-called free trade agreements ďlight,Ē that would exclude certain sectors which are too difficult or otherwise lower the standards. Congress has told us in the Trade Promotion Authority law of 2002 in effect that Ēyou can go out and do free trade agreements, under certain conditions, but they have to meet these kinds of standards.Ē If we had a perfect marketplace with a foreign country, perhaps there would be no need for a free trade agreement. We try to do them where we can accomplish something of interest to US business.

Most countries we have ended up doing FTAs with are good friends of the United States, generally pro-trade, but also have some areas in which we would like to see further openness in their economy. So we use the free trade agreement both to build on the positive situation in the country, but also to seek some more openings for our companies, and vice versa: they get some more openings for their goods and services here.

Targeting key countries
We are in dialog with all the key countries. Take the case of Kazakhstan, which is an important emerging country, in Spring 05 the US signed a TIFA with the five Central Asian countries. Only one of the five, Kyrgystan, is a member of the WTO. We are trying to help the others get there. Kazakhstan is probably further along than the other three candidates. We want to talk about some issues in the region. What can we do to promote investment, what can we do to promote the protection of intellectual property rights? Each area is different. We are not, at this stage, looking to do a comprehensive free trade agreement. We think that is the sort of thing you build towards.

India
I personally donít work on India, but Ambassador Portman has been there twice this year, including once with President Bush. The relationship with India, broadly defined, across a range of issues, has moved forward dramatically in the last few years. Trade is no exception.

Probably the biggest single issue in the trade world these days, globally, is this effort to get an agreement in the WTO for the Doha Development Agenda, the Doha Round. It is interesting that the inner group of four, the key countries that meet in small ministerial meetings, are the US and EU, Brazil and India. I think that reflects the changing nature of trade in the world. [Traditionally, an inner group would be made up only of major economic powers, such as the US, EU, Canada and Japan]. There are a lot of areas where the US and India have a lot of potential to work together, in the multilateral system and bilateral system.

Ambassador Portman is on the phone regularly with Minister Kamal Nath.  We have really come a long, long way in the US-India relationship. We think we can do something that is in the trade interests of both countries, but also help contribute to the overall relationship and to the global economy.

FTAs and the WTO
We believe that the US is trying to move forward economic integration and trade liberalization, because it is in the interests of all of our countries and peoples to create more incentives for growth and productivity and competitiveness. We think you can do that in a variety of ways. Clearly, the top priority, the optimal way to do it, is in the WTO. If you could get a comprehensive, high-standard agreement that would apply to all 150 current members (and we would like to see countries that are not members, such as Russia, Kazakhstan, Vietnam, Algeria and Lebanon join the WTO), that would be the best. It would be the simplest for the business community, to have one clear set of rules, one process.

Our experience has been that when you negotiate in a process of 150 members making decisions by consensus, we arenít always able to get the highest standard of what we would like to see in an agreement. So we think that when we see special partners step forward, that are willing and able to join us in higher standards, more liberalization, more coverage, stronger disciplines on intellectual property rights, on investment, on standards, on opening markets, lower tariffs, we think we should do that.

The bilateral agreements can be trailblazers. We started doing some of the issues, like on investment and intellectual property rights, in our early bilateral agreements. They are now part of the WTO agenda. Weíve found that countries with which we have high standard, bilateral agreements, often are our strongest allies in the WTO, because they have already taken these high commitments to open up to the US, so they are natural allies.

There are dissenting views, from academics and others, who think that these are conflicting strategies: the WTO strategy vs. free trade areas strategy. Ambassador Portman, like Ambassador Robert Zoellick and other USTRs before, have felt that this is not the case: you carry forward the momentum for trade liberalization any way you can. I am confident that Ambassador Schwab will have the same approach.

Nevertheless, the WTO is our highest priority. If we could get the best agreement there, that would have great benefits for us and other countries.

FTAs close to implemention
Among the FTAs signed but not fully in force yet, is Bahrainís. This has been approved by the US Congress, but the Bahraini parliament has to make some changes in their copyright and patent laws. But it is our target by the middle of this year to bring that fully into force.

The Congress right now is considering the Oman Free Trade Agreement. Ambassador Schwab has done testimony in both the House and the Senate. We hope that in the coming month or so we will see that passed, and then the president can sign it into law. They we can bring that into force quickly.

Negotiations on FTAs for Peru and Colombia have been concluded. [FTAs] go on a sort of conveyor belt, which doesnít always run at the same speed. Congress likes to take these in order. They are done with Bahrain and are dealing with Oman. They see Peru and Colombia coming to them.

FTAs in negotiations
For example, there have been four good rounds of negotiations with the United Arab Emirates. We hope to conclude them this year. It is our third leading trading partner in the Middle East and a very important regional hub.

In Southeast Asia we are working on a Thailand FTA. We have had long negotiations with five countries in the Southern African Customs Union (SACU)

Egypt has been one of the countries in consideration. We have had a very good dialog with the Egyptians, led by their very impressive minister of trade, Minister Rashid. Egypt remains a high priority for us, to try and take the trade relationship forward. There are some other issues that are out there, in the broader Egyptian-US relationship. We have to recognize that. We have to work with the Congress on all these agreements and take [an FTA] to the Congress to get it passed. So it is not an unprecedented thing for us to reflect some broader considerations.

We still see Egypt as an important partner. We are hoping that we can find a way to go forward in trade. We hope it will be a comprehensive free trade agreement. We want to keep our dialog going with the Egyptians. The Egyptian government has done a lot of very good things in the trade and economic field, on their own, through their own reform program. It is an important country and an important market for American countries, but we have to find the right time to do [an FTA]. Egypt has made real progress in the governance side and economic policy side. You are seeing more and more foreign, including American, business going to Egypt. Egyptís efforts have clearly raised its competitiveness and success in attracting foreign investment.

The FTAA (Free Trade Agreement of the Americas) is on the back burner for now. It can be hard to negotiate FTAs with that are already negotiating with you under the WTO.  
 
New on the FTA screen
Last summer Ambassador Portman identified a couple of countries as potential partners. We have gone through a review, and recently announced that we will begin negotiations with Korea and Malaysia. These are two big, very important, fast-growing markets for American business.

It is important to recognize that free trade agreements are not something done by one country for another. [FTAs] are a two-way venture. Each country is making commitments towards the other one. We expect to benefit and we expect the partner to benefit. It is different than the preferential programs with developing countries [such as AGOA with Africa; CBI with the Caribbean; ATPA with Andean countries, etc], but I think over the longer term, for countries that are able to compete, to move to the level of a truly bilateral agreement really improves our competitiveness and their competitiveness.

If our free trade agreement is successful, our partner country wonít just be exporting more to us, they will become more competitive, they will become a bigger trading force in the world, and they will attract investment, some from their own nationals, some from Americans, and some of it will be from third countries that want to come there. It is not just an opportunity to sell a few dozen more T-shirts. 

We are asking a lot of a partner and they have to see it as a long-term effort to make themselves more competitive.

Success stories
The Jordan free trade agreement has been particularly successful. Exports from Jordan to the US went from about $85 million in the late 90s to $1.7 billion now. Jordan has attracted investment including in fields such as pharmaceuticals, which are heavily dependent on the intellectual property regime. It is a small country, but Jordan got into this agreement for the right reasons. Other Middle Eastern countries see Jordanís success and get interested.

Itís so hard to identify who the winners are going to be. There could be some little machine shop in Kentucky that (through NAFTA) will find a market in Mexico. Trade agreements are really about creating opportunities. There are always surprises: some entrepreneur sees a niche and exploits it. Thatís a good thing.


Biography of Shaun Donnelly, Assistant U. S. Trade Representative for Europe & the Middle East
Shaun Donnelly became the Assistant U.S. Trade Representative for Europe and the Middle East at the Office of the U.S. Trade Representative (USTR) in mid-August 2005. In this position, he is responsible for developing and implementing U.S. trade policy toward Europe (including the European Union), Eurasia, and the Middle East.

Mr. Donnelly came to this leadership position at USTR from a thirty-three year career as a Foreign Service Officer at the U.S. Department of State, concentrating on economic and trade issues. Immediately before joining USTR, Mr. Donnelly served for four and a half years as Principal Deputy Assistant Secretary in the State Departmentís Bureau of Economic and Business Affairs, the number three economic policy job at the Department of State. He has also served as U.S. Ambassador to Sri Lanka and the Maldives, as Deputy Ambassador in U.S. embassies in Tunisia and Mali, and as an Economic-Commercial officer in our embassies in Egypt, Ethiopia, and Senegal. He has led the Department of Stateís Offices of European Union Affairs and Development Finance and served eight years in Deputy Assistant Secretary-level positions.

Shaun Donnelly is a native of Culver, Indiana. He earned a B.A. degree in economics from Lawrence University and an M.A. degree in economics from Northwestern University. Mr. Donnelly served as a Peace Corps volunteer in Tunis, Tunisia. He is married and has two teenage sons.