Postcard-sized agreements could solve trade disputes

While overshadowed by other remarks during the recent Group of Seven meetings, President Trump suggested that trade agreements could be “much simpler” and that they should eliminate all barriers to trade.

The president’s instincts that trade agreements could be both simpler and more comprehensive are correct. Paradoxically, simpler agreements could go further than existing lengthy agreements in eliminating trade barriers.

In fact, the surest way to eliminate all trade barriers would be through a simple, postcard-sized Free Trade Agreement (FTA). 

A postcard-FTA would involve a single but comprehensive obligation whereby each party would agree “to treat foreign goods, services and investments no less favorably than domestic goods, services and investments.”

{mosads}More than any current trade agreement, this simple commitment would produce the proverbial level playing field sought by American businesses, workers and farmers while at the same time serving the best interests of U.S. consumers.

First, such a commitment would necessarily eliminate all tariffs. Because tariffs apply only to imports, their application by definition would cause imports to be treated less favorably than domestic goods and would therefore be impermissible.

Second, this simple commitment would eliminate non-tariff barriers. While countries would be free to regulate as desired to protect national security, consumer welfare, the environment and other legitimate public purposes, such regulations would need to apply equally to both foreign and domestic goods and services.

Insisting that domestic regulations be applied in a non-discriminatory fashion would be a huge benefit to U.S. exporters since they often face unfair treatment in foreign markets.

To avoid letting the perfect become the enemy of the good, parties to the postcard-FTA could agree to a limited but balanced number of exemptions to the basic obligation.

For instance, if the U.S. wanted to preserve the Jones Act, which bars non-U.S. ships from transporting goods within U.S. internal waterways, it could be exempted from the non-discrimination requirement. Other countries of course would insist on comparable levels of exemptions to reflect their own domestic priorities.

In addition to leveling the playing field for U.S. exporters, this simple agreement would also serve as a useful brake on those calling for protectionist laws and regulations that hurt U.S. consumers and invite crony capitalism.

The postcard-FTA would serve the president’s preference for bilateral trade agreements while preserving the basic level of commitments reflected in existing World Trade Organization (WTO) agreements.

These agreements, especially with regard to intellectual property protections, would be important complements to bilateral agreements. Certainly even a very succinct bilateral agreement could make room for critical WTO-plus obligations.

Finally, to be effective, the postcard-FTA would require expedited enforcement procedures accessible to both government and non-government stakeholders. Without effective and timely ways to enforce non-discrimination requirements, agreements — simple or complex — are just aspirational pieces of paper.

There is a strong and distinguished precedent for the postcard-FTA, namely the Commerce Clause of the U.S. Constitution, which was designed to prevent states from discriminating against goods and services from other states.

Despite its brevity, the Commerce Clause has long served as an effective guard against interstate discrimination. If properly enforceable, a simple agreement could serve this same function at an international level.

The postcard-FTA would serve the interests of consumers by assuring robust competition and would serve the interests of producers by assuring non-discrimination in foreign markets.

Pursing such agreements would allow the president to learn which Americans and foreigners really want fair and open competition and which prefer to be shielded from the forces of competition. 

John K. Veroneau is a partner at Covington & Burling LLP and formerly served as deputy United States trade representative under President George W. Bush.