The Biden administration likes to distinguish between “traditional free trade agreements” and its “21st century trade framework.” Late last week, this match-up was brought into sharp relief.
On Wednesday, a House bill, following a Senate one, proposed that President Biden negotiate a trade deal with the United Kingdom. On Saturday, the U.S. hosted a ministerial meeting on the Indo-Pacific Economic Framework for Prosperity (IPEF). Both are obviously works in progress, but even at this early stage, it’s obvious they build from very different perspectives on trade.
The bill, which takes its cues from the groundwork done by the United States-United Kingdom Trade and Investment Working Group, sees trade as an opportunity. IPEF, on the other hand, views trade more as a challenge. It’s peace and prosperity versus regulatory “races to the bottom.”
First, some background on last week’s happenings.
On May 24, Rep. Adrian Smith (R-Neb.) and Rep. Jim Himes (D-Conn.) introduced the Undertaking Negotiations on Investment and Trade for Economic Dynamism (UNITED) Act. It mirrors Senate Bill S.629 from March 2. The UNITED Act wants a U.S.-U.K. trade deal and plans to give Biden the authority to negotiate one. The goal is to get “market access” commitments, which are the hallmark of a “comprehensive trade agreement.” This is because the U.S. has to catch up with “many key trading partners … actively negotiating for expanded access to foreign markets.”
The UNITED Act, in other words, envisions the opposite of IPEF. Score one for traditional free trade agreements.
On May 26, a coalition of 34 business and agricultural associations voiced support for traditional free trade agreements. In a letter to Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai, they expressed their deep misgivings about IPEF. The list starts with the obvious: a lack of “negotiations to remove tariffs and other market access barriers.” But just as alarming, the coalition insists that IPEF represents a retreat from “traditional U.S. trade priorities” like standards, such that IPEF may well end up “doing material harm to U.S. economic interests.”
The Biden administration has heard all this before. It dismisses the criticism that IPEF lacks market access commitments, demanding this is “a feature,” not a “bug.” Standards are in there too; the trade pillar points to the need for “cooperation regarding regulatory and administrative requirements,” for example. Unlike a traditional free trade agreement, IPEF’s provisions are not binding. They’re “self-enforcing,” which means that countries will comply because it’s in their best interest to do so. But what if this is wrong?
Consider the following scenario.
IPEF’s pillar on supply chains focuses on “resilience.” In case of a bottleneck, the countries can “take individual or collective actions to address them.” What if the bottleneck traces to another country’s “unnecessary restrictions or impediments?” Who decides if this allegation has merit? Or what the appropriate remedy might be? IPEF uses terms like “cooperation” and “collaboration” in this context. Yet, if these efforts come up short, the go-to “individual” action will be unilateralism.
Unilateralism is in vogue on both sides of the aisle. It fits with the “America First” trade policy, which aims to influence countries abroad, and the “progressive” trade policy, which wants to close off commerce. The problem is that unilateralism doesn’t pay, economically or politically, as U.S. tariffs on China have shown.
Free trade agreements don’t operate in a vacuum. To wit, would a U.S.-U.K. bilateral or IPEF fit better with multilateralism?
The U.S. and the U.K., and all of the IPEF countries, belong to the World Trade Organization (WTO), and each has bilateral and other trade deals. Countries can thus shop rules and the judicial bodies that interpret them. A U.S.-U.K. bilateral, like any traditional free trade agreement, has to deal with this directly, because many of its binding commitments will overlap with those of the WTO.
In theory, IPEF doesn’t have this worry because it doesn’t have binding commitments. This is undoubtedly why Tai insists IPEF won’t “conflict” with other trade deals. But this is more definitional than real. Some of IPEF’s aspirations may run afoul of the WTO, and the “individual and collective” fixes that IPEF calls for could be WTO illegal. Without a roadmap to make some sense of this, IPEF might actually be less plug-and-play with multilateralism than its proponents believe.
Why, then, is the Biden administration trying to reinvent the wheel? The pitch is that trade rules have to be brought into alignment with industrial policy goals in order to address challenges like climate change. This is tricky. The plea heard at COP27, for example, wasn’t that trade rules had to be updated, but that they had to be suspended. On issues from subsidies to intellectual property rights, the talk was about the need for a “climate peace clause.” IPEF cannot be written to appease these misguided demands, and there is no modern challenge for which protectionism is the answer.
Last week wasn’t about traditional versus shiny and new. It was about opening versus closing markets.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a global fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on Twitter @marclbusch.