If the Bush administration is serious about trade agreements, it should study the work of Thomas Schelling, winner of the 2005 Nobel Memorial Prize in Economic Sciences. Schelling won the prize for applying game theory to Cold War nuclear strategy.
His insights apply equally to trade negotiations, which are not going well for the administration. Few veteran observers expected much from the recent Summit of the Americas in Argentina, but the outcome fell below even skeptics’ expectations.
President Bush called for movement toward a Free Trade Area of the Americas, an episodic goal of U.S. policy since 1994. He had support from Mexico, Colombia and Chile, but met opposition from Argentina, Brazil and Venezuela. The outcome was a deadlock.
At the same time, the European Union is conceding little in World Trade Organization negotiations on agriculture. The United States proposed substantial cuts in both agriculture subsidies and barriers to farm imports. The EU is not willing to meet those proposals, in great part because of France’s objections.
Some question whether success in either WTO or FTAA negotiations is a priority for the Bush administration. It has many fish to fry right now, and trade deals elicit little voter support. But if the administration wants success, it should heed Schelling’s insights.
Schelling emphasized the importance of credibility in nuclear strategy. He explored ways a country could increase its credibility in the eyes of opponents. The U.S. administration has neglected to foster credibility in its trade posture.
Take the U.S. refusal to abide by the ruling of a North American Free Trade Agreement panel against U.S. barriers to lumber imports from Canada. In signing and ratifying NAFTA, we agreed to clear dispute resolution procedures. But now that a ruling has gone against U.S. policy, the administration ignores those commitments and has stiffed one of our closest allies by refusing to remove the barriers.
This adds some $4,000 to the cost of each new home in our country. It also gives opponents of trade agreement in other nations a rhetorical weapon. Look, they argue, if the United States refuses to honor promises made to its closest neighbor, why should they trust it to honor commitments made in FTAA or WTO negotiations?
They also can question the sincerity of U.S. calls for lowered farm subsidies and trade barriers. U.S. cotton subsidies are among the most egregious trade distortions in the world and inflict particular harm on Brazil and poor countries in Africa. Current deficit reduction initiatives in Congress would cut people off Medicaid and curtail heating assistance for the poor, while cotton subsidies are unscathed. Despite lip service to budget restraint, the administration has not supported any farm subsidy cuts.
If we are not serious about making any of the adjustments needed to achieve trade agreements, perhaps we should just say so.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.