Unfortunately, US and Brazilian recalcitrance now virtually ensures that FTAA negotiations will drag into 2007, when TPA will have definitively expired. During the Miami Ministerial in November 2003, the hemisphere agreed to “FTAA-lite” on US and Brazilian insistence.

FTAA-lite—a complicated dual track strategy whereby members can pick and choose the depth of their obligations, and partner countries can tailor their market access offers accordingly—conveniently allows the United States to keep most of its agricultural barriers and subsidies and not to reform its antidumping laws. Moreover, the formula allows Brazil to go slow on intellectual property protection, maintain tariffs on some manufactured goods, and selectively liberalize services. Under FTAA-lite, other members can likewise retain their favorite protective barriers. As sensitive sectors are taken off the bargaining table, the potential payoff from the FTAA will, of course, be progressively eroded.

Bilateral Free Trade Agreements

After Congress enacted Trade Promotion Authority, Zoellick energetically pursued bilateral FTAs under the banner of “competitive liberalization.” The competitive liberalization theory is straightforward: bilateral FTAs, drafted as “gold standard” agreements, will magnetically attract outsiders lest their exports be disadvantaged. The problem is that some insiders in bilateral arrangements prefer to keep the club doors closed. In the end, it is an empirical question whether magnetic attraction or closed clubs are the stronger force, and thus whether bilateral FTAs advance or retard the cause of global liberalization. Not until the Doha Round and the FTAA are concluded can we evaluate whether bilateral FTAs delivered on the promise of competitive liberalization or whether they simply sidetracked the world into shallow, face-saving agreements.

Meanwhile, thanks to Zoellick’s strategy, the United States has a long list of eager dance partners. How to choose? Multiple beauty points play a role: countries that already had liberal markets (Chile and Singapore), countries that were allied with US priorities in Afghanistan and Iraq (Australia and Thailand), countries that might spur the FTAA negotiations (Central America, Colombia, Peru and Ecuador), countries that claim a strong Congressional constituency (Dominican Republic and South Africa), and Middle Eastern countries ready to embrace democracy and free markets (Morocco and Bahrain).

The first two FTAs, gold standard deals with Chile and Singapore, were easily negotiated and ratified. After those, the bilateral FTA strategy has run into problems. The United States pulled back on farm liberalization in the Australian and Central American FTAs, and the partners pulled back on sectors of interest to the United States. Congressional Democrats are eager to block FTAs with countries that have deficient labor standards, and none of the FTAs now on the dance floor meets the gold standard.

The North American Free Trade Area

In the wake of September 11, 2001, the NAFTA partners took timely measures to keep their borders both open and secure. In January 2004, President Bush bravely outlined legislation to improve the condition of legal and illegal immigrants. Otherwise, the NAFTA relationship has been somewhat static, even though trade with Mexico and Canada now accounts for about 30 percent of US commerce. Much work remains to complete the North American market: energy reform in Mexico, natural gas pipeline routes with Canada, harmonized food safety standards, more robust environmental and labor standards with funding to match, and stronger NAFTA institutions.

Trade Disputes

Trade disputes are part of healthy trade relations. Brazil and India do not have many trade disputes because they do not have much trade. The challenge facing governments is not to avoid disputes but to resolve them expeditiously. Soon after he was named US Trade Representative, Ambassador Zoellick settled the banana dispute with Europe—a product grown neither in the United States nor in Europe, but a dispute in which one US firm had an important investment at stake. While the settlement departed from the tenets of free trade, it was at least resolved.

The same cannot be said of other and more important disputes inherited by the Bush administration. The gigantic softwood lumber battle with Canada is still going strong after two decades. The administration asked the US Congress to settle the Foreign Sales Corporation tax dispute with Europe but ducked the larger issue of lopsided WTO rules for adjusting business taxes at the border. The sugar dispute with Mexico started before the ink was dry on NAFTA and continues to this day (the United States refuses to open its sugar cane market as promised, and Mexico restricts its corn syrup market). To its credit and against strident opposition from James Hoffa’s Teamsters’ Union and Ralph Nader’s Public Citizen non-governmental organization, the Bush administration did navigate a settlement of the trucking dispute with Mexico. Unfortunately, the settlement is now tied up in the US Federal Ninth Circuit Court.

Taking these and other trade cases together, the result is a pile of unresolved trade disputes. The case backlog is not yet a critical problem, but it is a festering worry.

Exchange Rates

Tradition dictates that, among cabinet members, only the US Secretary of the Treasury should make statements on exchange rates. His careful phrases and occasional intervention, moreover, should be guided with an eye both on Wall Street (advocate of the “strong dollar”) and on Main Street (champion of the “competitive dollar”). If the Secretary of the Treasury ignores Main Street, as he did in the strong-dollar era of former Secretaries of the Treasury Robert Rubin and Lawrence Summers, trade policy pays a price. US firms find it increasingly difficult to compete at home and abroad, and they resist new initiatives designed to liberalize markets.

When George W. Bush was inaugurated as US president, the dollar was reaching new heights, a trade-weighted index (TWI) of 123 (1997 = 100). The president and his Treasury Secretary, Paul O’Neill, had a choice: continue to favor Wall Street or listen to Main Street. With little thought, they repeated the strong-dollar mantra of their predecessors. Not until O’Neill was fired in December 2002 and market forces had begun to bring the dollar down (from a TWI of 129 in February 2002 to 126 in December 2002) did the mantra change. Using Orwellian doublespeak, in spring 2003, O’Neill’s successor John Snow reinterpreted “strong dollar” to mean “weak dollar.” In fall 2003, he called on China (and by implication the rest of Asia) to float its currency. Meanwhile, the US trade deficit had widened from $376 billion in 2000 to $489 billion in 2003. By March 2004, the TWI was down to 116, with at least another 20 points to fall before it reaches a level consistent with a trade deficit of “only” $300 billion.