There are multiple ways for governments to advance free trade through multilateral, bilateral or regional negotiations, each with a mix of benefits and costs. Three critical areas are: Tariffs (think taxes) on imported products raising costs to consumers in the importing country and protecting domestic production; Domestic Supports (think direct investments by government); and Export Subsidies (think lower taxes for exported products). Where does agriculture benefit in future negotiations?
Multilateral Negotiations – Think WTO. Historically, this has been the dominant approach, embodied in the World Trade Organization. The WTO currently has 164 members, and includes a single integrated system of global trade rules dedicated to open, fair and undistorted competition. Multilateralism is the purist approach to trade liberalization and includes negotiations on all three trade areas mentioned above. However, having so many members and all three areas on the table makes consensus difficult, and agriculture is often one of the sensitive issues that can stall negotiations.
Bilateral Agreements – Think FTAs. With WTO negotiations stalled, more countries have turned to bilateral free trade agreements (FTA). The United States currently has FTAs with 20 countries. The primary appeal is their speed and ease of negotiating with only two parties. However, they often fall short of promoting genuine free trade as they only address tariff levels between the two countries. Again, important but sensitive trade issues like agriculture are often excluded and they can create a complex set of overlapping and inconsistent rules.
Regional Agreements – think NAFTA. These agreements involve a group of countries within a geographic region who negotiate a free trade area for the signers. These are easier than multilateralism, and more substantial than bilateral deals. Challenges come with power imbalances that favor the largest member at the expense of smaller partners. They also pose the risk of dividing the world economy into competing trade blocs and, like bilateral agreements, don’t address domestic supports and export subsidies very well.
AFBF: #252 International Trade
American Farm Bureau Federation-Trade
Office of US Trade Representative