Free Trade Agreements: US Strategies and Priorities

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Free Trade Agreements: US Strategies and Priorities. Edited by Jeffrey J. Schott. Washington D.C.: Institute for International Economics (HE), 2004. Pp. 450.

This volume is the outcome of an HE programme on free trade agreements (FTAs) and U.S. trade policy launched in May 2003. It analyses the motives, incentives, and objectives behind the proliferation of FTAs involving the United States, and the strategies and priorities that the United States should adopt in pursuing its FTAs. This is one of the few books that provides an in-depth analysis into the U.S. experience with its existing FTAs, as well as its new and proposed initiatives with countries in different parts of the world. It provides excellent insights into U.S. foreign trade policy and the extent to which political and economic objectives define its free trade agenda.

The book is fairly lengthy, consisting of thirteen chapters divided into six sections. The first section provides a general assessment of FTAs and their implications for the multilateral trading system. The second section, divided into three chapters, assesses U.S. experience with its existing FTAs with the North American Free Trade Agreement (NAFTA) countries, Israel, Jordan, Chile, and most recently with Singapore among the ASEAN economies. The next three sections assess the new and ongoing initiatives of U.S. FTAs with countries in the Asia-Pacific, Latin America, and Africa and the Middle East respectively. The final section assesses the implications of the existing and ongoing FTA initiatives of the United States and provides some interesting policy conclusions on the basis of the several criteria chosen by the United States in shaping its FTA policy. There is also an appendix that undertakes a quantitative assessment of the economic impacts of these FTAs on the United States and partner countries.

Section I of the book devotes exclusively to the age-old debate on the question of whether FTAs are building or stumbling blocks to global free trade. There seems to be a general agreement that FTAs are likely to be most beneficial when they have a comprehensive coverage, if rules of origin are simple and requirements for compliance kept to a minimum, and members are committed to advance multilateral trade reforms in the WTO. The book highlights that there are potential downside risks of FTAs in terms of a possible failure of the multilateral system, which should be avoided at all costs since they would be significantly beneficial for developing countries. The comments at the end of this section strongly argue for ensuring that FTAs act as a complement, and not as a third-best substitute to the WTO.

Section II analyses the lessons from U.S. experience in entering into FTAs. Herein, the first chapter on U.S. experience with one of its earliest and most significant FTAs - NAFTA -involving Canada and Mexico as its members, clearly highlights the limited impact of NAFTA on the U.S. economy, compared with its other members. It also highlights an important point that the success of NAFTA could have been more far reaching if the development dimension of including funding mechanisms to promote development were being included in the FTA. The author views NAFTA as not just an economic arrangement, but also a foundation towards progress on other development issues.

The next chapter on the U.S.-Israel and the U.S.-Jordan FTA brings home the point that as opposed to NAFTA, both these FTAs have primarily been used as a foreign policy tool, rather than as an economic agreement. The author debates the extent to which foreign policy has overridden the economic agenda in negotiating U.S. FTAs, and aptly warns that scarce negotiating resources are being diverted towards FTA negotiations that do not yield any substantial economic payoffs.

In the ASEAN context, the next chapter on the U.S. experiences of FTA with Singapore is significant, though this chapter also combines the lessons from the U. …