Unilateral and Multilateral Approaches to Trade

1. Unilateral and Multilateral Approaches to Trade Omarana Ejaz ITRN 701 Professor Malawer October 16, 2008

2. Overview • Unilateral Trade • Multilateral Trade • World Trade Organization (WTO) • 2 different trade approaches • Free Trade • Fair Trade • Presidential Candidate Position on Trade • Problems with Trade • Proposal and Solution

3. Unilateral Trade • A narrow way of looking at trade • Can impact one country heavily over the other country • Ideas and rules can suppress one country from economical and global gains • Not such a frequent way of doing trade business today

4. Multilateral Trade:World Trade Organization (WTO) • World Trade Organization (WTO) — An organization that deals with the rules of trade between nations at a global level • place where member governments go to negotiate all matters, may it be trade problems or the agreements themselves • Most countries now use the WTO as a way of conducting trade. This is the major multilateral trade approach used today amongst the global economies • WTO tries to have member governments to negotiate on both freer and fairer trade. • This multilateral trade organization is not only looking out in the interest of the developed countries, but also the less developed and developing countries

5. Multilateral Trade:Free Trade Approach • Not a zero-sum game • Multilateral trade expansion outweighs the cost associated with multilateral trade policies • Institute for International Economics (IIE) measured benefits of trade liberalization • Concluded that since the end of World War II multilateral trade from 1945 to now generated economic benefits anywhere from $800 billion to $1.45 trillion per year in added output. • This equates to about an added per capita benefit between $2,800 and $5,000, which means an addition of somewhere between $7,100 and $12,900 per American household • Free trade allows economies to increase economic output while holding inputs constant; making it a win-win arrangement for the participating economies

6. Multilateral Trade:Free Trade Approach continued • Free trade causes increased competition within the same sector production, which eventually can benefit the consumer • Open global economy expands market opportunities for both the exporters and the importers, which will eventually force firms to increase efficiency • Freer trade is also an approach the United States can use to alleviate global poverty because free trade is an engine for economic growth in the developing world. • Trade is a mean to raising incomes, expanding consumer choice, helping poor countries develop, promoting the rule of law, and advancing American foreign policy

7. Multilateral Trade:Fair Trade Approach • Some items that are valued besides maximizing national income are community stability and income security • Fair trade is a way to include all safeguards to protect job losses from import competition • Fair trade slows down the number of bilateral free trade agreements signed with developing countries • Fair trade means that the U.S. will rely more on “managed trade” arrangements and unilateral trade sanctions to promote U.S. exports

8. Multilateral Trade:Fair Trade Approach continued • Advocates of a fair trade approach argue that free trade does not look at the individual and the burden of cost on the individual who might loose their job because of free trade

9. John McCain Pro free trade and pro WTO Free trade is a means to open “closed societies” in the Middle East Free trade is “the future of America’s economy” and warned against protectionism Barack Obama Would like to renegotiate free trade agreements with Canada and Mexico, and if not renegotiated he will pull the U.S. out of the agreement NAFTA is a “bad” deal Generally supported free trade policies however has some reservations on it when it comes to labor and environmental protection regulations Presidential Candidates’ Views

10. Some Problems with Trade • Major issue with trade and the desire to advance in global trade and trade approaches is the public’s perception. • In the last five years, support for free trade has declined • Americans have always been suspicious of trade and do not tend to agree with any type of trade agreements or approaches the United States comes up with

11. Some Problems with Tradecontinued • For example, in the last decade more than 80 per cent of Americans have continuously told the Chicago Council on Foreign Relations that America’s priority should be protecting jobs of the American workers • According to a poll conducted July 2004 by the German Marshall Fund of the United States concluded that only 4 per cent of Americans supported the North American Free Trade Agreement (NAFTA)

12. Some Problems with Tradecontinued • There are three major reasons why Americans have now gone to support fair trade more versus free trade • first major reason for Americans to not like trade approaches that offer “free trade” is because during economic uncertainty any job losses to free trade due to import competition cause the public to see trade as an unpleasant vehicle • Even there is no proven correlation between trade and employment

13. Some Problems with Tradecontinued • The second reason why a trade approach such as free trade is not accepted too much amongst Americans is because it is an election year in the United States. • Those who will be affected by trade in a way they will not be able to reap benefits but instead see an increase in costs will be the ones who contribute to campaigns and vote on the issues • In this aspect politicians will try to include protectionist rhetoric to win votes and group support • Example: the offshore outsourcing sparked outcry amongst Americans and politicians and politicians urged that the United States government take actions to keep the jobs inside the United States

14. Some Problems with Tradecontinued • The third reason for the public being suspicious of free trade is because it is seen as a zero-sum game • Americans feel that their jobs and wages are threatened with the free trade sphere. Even though the probability for losing a job from import competition or offshore outsourcing is small, however the concern of lost jobs is enough to provoke concern in Americans • When compared to other countries, Europeans are more open to international trade policies than Americans

15. Solutions • Educating Americans will show them the approach to trade is not a zero-sum game and that there is some benefit in it for everyone, globally as well as domestically • The government has to make sure they instill trust in its citizens to believe that as the United States goes into a more global and open market that everyone will see its benefits • Trade relations will start to flourish if Congress can give each president the “fast-track” authority for securing trade deals

16. Sources • Drezner, Daniel W. U.S. Trade Strategy: Free versus Fair. September 2006 • Zoellick, Robert B. Unleashing the Trade Winds: A Building-block Approach. United States Trade Representative. http://usinfo.state.gov/journals/itps/0803/ijpe/pj81zoellick.htm. • “McCain hails NAFTA and Canada's role in Afghanistan,” CBC News, http://www.cbc.ca/world/usvotes/story/2008/02/29/mcain-nafta.html, February 29, 2008. • Council on Foreign Relations, http://www.cfr.org/publication/14762/, July 30, 2008. • Council on Foreign Relations, http://www.cfr.org/publication/14762/#republican, July 30, 2008. • Council on Foreign Relations, http://www.cfr.org/publication/14762/#democratic, July 30, 2008. • http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm. • “Free vs. Fair Trade: Council Report Presents Two Paths for U.S. Policy.” Council on Foreign Relations.http://www.cfr.org/publication/11373/free_vs_fair_trade.html. August 30, 2006. • International Trade: The United States Needs an Integrated Approach to Trade Preference Programs. General Accounting Office Reports & Testimony. • http://www.allbusiness.com/trade-development/economic-development/11508859-1.html. August 1 2008.