Have a View
Pitfalls in Asymmetric Negotiations:
Will the U.S. be the Next Goliath?
Kimberly Elliott*
November 2003
www.cgdev.org
With the failure to reach agreement on how to
move multilateral negotiations forward in
Cancun and low expectations for the FTAA
ministerial meetings in Miami, negotiations
toward bilateral and other minilateral free trade
agreements are accelerating. Since 2000, the
United States has negotiated FTAs with Jordan,
Singapore, and Chile. Currently it is engaged in
negotiations with five Central American
countries (Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua), Morocco, Australia,
and the South African Customs Union (South
Africa, Botswana, Lesotho, Namibia, and
Swaziland).
In addition, the Bush
administration either has notified Congress of its
intention to negotiate additional FTAs or has
been approached to do so by a number of other
countries, including but not restricted to
Bahrain, Colombia, the Dominican Republic,
Ecuador, Peru, and Thailand.
the opportunity to join those negotiations for
unrelated political reasons.
The most obvious threat to development and
poverty reduction in this trend is the possibility
of trade diversion to the detriment of countries
left out of such arrangements. Central America
is negotiating an FTA with the United States, in
part, because of the negative effects on them of
the North American Free Trade Agreement.
Congressional supporters of the Africa Growth
and Opportunity Act are already discussing how
to adapt the program to minimize potential
negative effects on AGOA-eligible countries of
the planned US-SACU free trade agreement.
New Zealand is likely to suffer trade diversion
from the US-Australia FTA but it was denied
For smaller countries, however, this asymmetry
in potential benefits brings with it an asymmetry
in bargaining power over specific elements of
the agreement. Because the expected economic
benefits of trade agreements with small
economies will be virtually undetectable in an
economy as large as the United States,
American negotiators have little incentive to
take on politically powerful sectors that oppose
liberalization. The United States chooses to
engage in FTA negotiations with much smaller
economies for reasons that are largely noneconomic—political, to promote market reforms
and support emerging democracies; symbolic, to
Asymmetric negotiations, between a large, rich
country like the United States and much smaller,
poorer countries also pose a number of
challenges for the smaller partner in the
negotiation. Traditional trade theory says that
the smaller partner will reap the largest share of
the gains from such agreements because the
efficiency and welfare-enhancing restructuring
triggered by trade liberalization will have a
relatively larger effect in the smaller economy.
The smaller partner may also be able to reap
economies of scale by gaining additional access
in the larger country’s market. Finally, many
developing economies hope to use free trade
agreements to lock in domestic economic
reforms and, thereby, send a positive signal to
potential foreign investors.
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demonstrate progress in international trade
negotiations at a time that the multilateral level
seems stalled; precedential, to establish rules in
new areas that might be replicated at the
regional and multilateral levels.
While
important, such incentives are unlikely to be
sufficient to achieve approval in the US
Congress when an agreement also involves
tangible losses for protected, import-competing
sectors.
countries of the WTO Agreement on TradeRelated Intellectual Property, US negotiators are
demanding WTO-plus rules on intellectual
property protections in the FTAs that it is
negotiating around the world. And, at the same
time that the International Monetary Fund is
rethinking the relative costs and benefits of
capital market liberalization, US negotiators are
demanding that FTA partners abjure the use of
capital controls.
Thus, in bilateral (and regional) negotiations up
to now, the United States is taking a largely
traditional mercantilist stance, demanding farreaching concessions in agricultural, high tech,
and services sectors where it is competitive and
resisting concessions in sensitive sectors where
it is not. So far, US negotiators are refusing to
discuss agricultural subsidies and anti-dumping,
key areas of interest to many developing
countries, insisting that they be negotiated at the
global level. In negotiations to date, they have
also yielded little in sensitive agricultural
sectors, such as sugar, and have insisted on strict
rules of origin that reduce the value of market
access concessions on textiles and apparel.
And, although US negotiators have shown
flexibility on phase-in periods, they demand that
even countries with large subsistence
agricultural sectors must open their markets for
basic food crops such as corn and beans. The
problem is that the transition periods are
arbitrarily chosen rather than being based on
development indicators, such as the proportion
of the population remaining in rural areas.
The smaller and the less developed the economy
engaging in asymmetric negotiations, the more
it must be aware of the sunk costs that it incurs
almost immediately when it enters into
negotiations. A major goal of many developing
countries who negotiate FTAs is to attract
foreign investment. But potential or existing
foreign investors are likely to view it as a
negative signal of a country’s commitment to
reform and to openness if it fails to successfully
conclude an FTA after negotiations are
launched. Although it is the actual state of the
local business environment that will ultimately
determine the direction of capital flows in and
out of a country—both foreign and domestic—
and even though that environment depends more
on local national actions than on any FTA, fears
of negative market reactions further undercut
what little negotiating leverage developing
country governments have.
With these dynamics in place, it is possible for a
small country to find itself negotiating, not for
additional gains, but to avoid losses. Depending
on the outcome of the final negotiating session
in December, this could be the situation that the
countries of Central America face in deciding
whether or not to conclude an agreement with
the United States. Thus far, US negotiators
have offered little beyond consolidation of the
market access that the Central American
countries receive under existing unilateral
preference programs. But many in the business
community there believe that failure to conclude
an
agreement
would
have
negative
Moreover, the trade agenda today has expanded
far beyond reductions in tariffs and other border
barriers to include a broad range of regulatory
issues in areas where the optimal level or form
of regulation is not obvious. In many areas, for
example intellectual property protection, global
harmonization of rules does not necessarily
yield benefits for all and could even impede
economic development. Yet, even as steps have
been taken to reduce the burden on poorer
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cooperatively can influence the course of the
negotiations. So far, they have shown only that
they can block action; the real challenge is in
whether they can find common ground for
moving forward. The initial reaction of the U.S.
negotiators was to see a threat in the new
coalition of developing countries. Rather than a
threat, however, the evolution of developing
country power represents an opportunity to
build a multilateral trade system that is more
balanced and therefore stronger and more
sustainable.
consequences for foreign investment in the
region. Moreover, whether because of explicit
or implicit threats from US negotiators or key
congressional leaders, some in the region fear
that failure to reach a deal with the United
States could lead to the loss of existing
preferences when those programs come up for
reauthorization in a few years.
From a development perspective, the
multilateral system offers greater gain with less
risk.
The WTO meeting in Cancun
demonstrated that developing countries acting
*Kimberly Elliott is Research Fellow at the Center for Global Development and the Institute for
International Economics.
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