Politics in command: the case of the US proposal for an FTA with the Philippines.

• Author: De Castro, Renato Cruz
• Position: Free trade agreement

Introduction

On 11 March 2002 Senator Richard Lugar presented to the United States Congress Senate Bill 2004. The bill authorizes the American President to negotiate and conclude a free trade agreement (FTA) with the Republic of the Philippines. Washington's offer of an FTA to Manila has very strong political-strategic undertones. (1) It should be noted that Washington's choice of a bilateral negotiating partner is based on several factors ranging from the open trade policy of the partner country, hemispheric political grounds (as in the case of Central America), global strategy (as in the proposed negotiations in the Middle East), and to support for the wider US foreign policy objectives (as in the cases of the Israel, Jordan, and Australia). The Philippines is not a major trading partner of the United States. However, an FTA with the Philippines will have important strategic and foreign policy implications for the Bush Administration's current war on terror and for the revitalized security relations with Manila.

A free trade deal with the Philippines will not only manage practical trade problems with the latter, but more significantly, it will build closer bilateral economic and security ties. The Bush Administration considers the proposal as part of its international counter-terrorism initiative. Washington extends an FTA to the Philippines to elicit political compliance and loyalty from the country. It is also aimed at minimizing political disputes between the two allies in the light of the war on terror and other future conflicts in East Asia. From the Bush Administration's view, an FTA deal will provide the Philippines a better chance to compete in a changing and globalizing international economy and, possibly, enable it to lift the majority of the population from poverty through international trade, and to contribute to regional stability and order.

This article raises these questions pertinent to the FTA proposal: (1) What are the strategic and political agenda of the Bush Administration in its current efforts to promote competitive liberalization in international trade? (2) How will the American FTA proposals in East Asia affect the regional commerce and trade considering the growing economic competition among the United States, China, and Japan? (3) What are the possible politico-strategic issues relevant to the US offer of an FTA to the Philippines? (4) What are the prospects of an FTA between the two allies?

The Bush Administration's Trade Policy

The United States is the largest trading state in the world. It is, however, not only a trading state. More importantly, it sees itself and acts as a leader or a hegemon in an open and a liberal trading order. According to American economist Charles Kindleberger, an open and a liberal international trading system requires a strong political leadership by the most advanced economy at a certain point in time. This concept, known as the theory of hegemonic stability, postulates that the leader or the hegemon facilitates international economic cooperation and prevents states from defecting through the use of side payments (bribes), sanctions, and/or other means that can (seldom, if ever) coerce reluctant states to comply with the rules of a liberal international economic order. This theory likewise assumes that a liberal and open international trading regime requires certain private good that will be provided by the hegemon--the United States. A public good has the properties of non-exclusivity (inclusiveness) and non-rivalrous consumption (Gilpin 2001, pp. 97-98). In managing the international economy, the hegemon guarantees the following public goods: (1) maintenance of the flow of capital to countries; (2) provision of some order and stability in the foreign exchange rates, at least among the key countries, and (3) arrangements for at least moderate coordination of macroeconomic policies among the leading economies (Gilpin 2001, pp. 97-98). A hegemon provides these goods for the liberal trading order primarily to promote its own interests, and in the case of the United States, its political/security interests.

In the post-World War II era, US trade policy under various presidential administrations has been focused on the promotion of an open and interdependent liberal international economy (composed mainly of the United States and its allies) to strengthen the anti-Soviet coalition. Since 1945, US trade policy has been consistently influenced by its three principal elements: adherence to an economic theory, federal legislation, and political expediency. In the hierarchy of the three, political expediencies mainly drive President George Bush's efforts at trade liberalization (Peterson 2004, p. 40). The current administration considers the FTA as the most credible and significant foreign policy instrument enabling the United States to use its large and attractive market to influence other countries' foreign economic policies (Mastel 2004, p. 48). To show that he meant business, President Bush abolished the National Economic Council (NEC) and declared that his administration would rely more on his own Council of Economic Advisers as well as the National Security Council on trade matters. Thus, he implied a more direct linkage of trade to American foreign policy and security concerns (Petersen 2004, p. 41).

President Bush's trade liberalization policy consists of two major components. The first component involves the adoption of protectionist "safeguards" the US government often used in the past: anti-dumping measures and countervailing duties. These measures are taken primarily to protect certain domestic interests in the American economy--the steel and textile industries, and the agricultural sector. President Bush wanted to establish a powerful link between his popular support base and his trade policy designed to generate political patronage from steel workers and farmers ahead of the 2002 mid-term election and 2004 presidential election. The plan also involved the provision of largesse to the major constituencies of the Bush's Republican Party needed to take control of Congress in 2002 and ensure his re-election in 2004 (Petersen 2004, pp. 41-42). By doing these, President Bush intended to placate domestic interest groups sufficiently to neutralize their opposition to his proposed international trade negotiations. With those interests assuaged, Congress could provide him easily with the necessary trade promotion authority.

The other component involves competitive liberalization by forming bilateral and regional FTAs with selected trading partners. This is primarily aimed at pressuring other countries or regional economic blocs to open up their markets. As a case in point, a bilateral trade accord with Central America will increase the incentives for Mercosur (South America's major trade bloc) to agree on an FTA, which in turn, will pressure the European Union (EU) to agree to reduce barriers globally. From the Bush Administration's perspective, bilateral and regional FTAs will trigger the forward momentum for trade liberalization as these will induce the world's major trading actors such as the EU and Japan to complete the broader, multilateral agenda of the World Trade Organization (WTO) (Gordon 2003, p. 105). The US President Trade Policy Agenda declares: "By pursuing multiple free trade initiatives, the United States is creating a competition for liberalization that provides leverage for openness in all negotiations, establishes models of success that can be used on many fronts, and develops a flesh political dynamic that puts free trade on the offensive" (Zoellick 2001, p. 1).

The 9/11 terrorist attacks in the United States accentuated the politico/strategic aspect of the Bush Administration's trade policy, and posed two major challenges to international trade and trade liberalization (Hocking and McGuire 2004, pp. 9-10). First, the impact of the terrorist threat, along with the downturn in the global economy, hindered the further expansion of international trade. Greater trade liberalization was also weakened as security measures to contain terrorism created more obstacles to foreign trade, foreign direct investments, and international migration. Border controls and heightened surveillance of container shipping and air transport resulted in higher transaction cost that adversely affected global trade. American firms were discouraged from relying on foreign assembly operation given the tighter border controls around the continental United States (Eichengreen 2004, p. 1). American companies like McDonald's and Starbucks, whose main opportunities for market growth are outside the United States, have now factored in the extra cost of providing security when they open franchise in other countries. Indeed, the tragic 9/11 events generated a new domestic pressure in the United States to close its borders.

Second, the 9/11 incidents demonstrated the risks of globalization to American society and the international community. The attacks reinforced the notion that while globalization may bring economic prosperity and affluence, it is also fanning the flames of social fragmentation, as well as racial, ethnic, and religious hatred and conflicts. In the process, US trade policy and the global trading system were placed under severe stress that could reverse the process of trade liberalization. If not checked, this trend could bring the world back to the era of the Great Depression, which was characterized by retrogressive globalization and the collapse of a liberal international economic order. A significant slowdown or a halt of globalization would represent a major defeat for the United States, whose foreign policy since the 1940s has been directed towards managing of a global economy based on economic liberalism.

The Bush Administration, instead of retreating and creating a fortress America, recognized the urgency of the...