Politics of Poverty

President Obama, tear down this (trade) wall…

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How The US and EU can do a “solid” for poor countries when they negotiate a trade agreement

The President’s State of the Union address last night contained a lesser announcement of the launching of a US-EU free trade agreement:

“And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.”

This idea has been floating for some months, pushed more from the European side than the US. The US and EU are already massive trading partners with mostly low tariffs and few serious trade disputes.  Nonetheless, making a trade marriage of it has hurdles.  The crux of the US-EU deal will be regulatory and ‘behind the border’ issues.  For example, both the US and EU have extensive farm subsidies and have been critical of one another.  Europeans have some regulatory measures that US exporters see as problematic. (Think GMOs.)

The question is—do developing countries have a stake in this?

The answer is—they could.

What if both sides committed to embracing the pro-development trade policies of the other to harmonize and improve the trade opportunities for poor countries?  The US has a handful of “trade preference” programs that offer special access to developing countries, like the Generalized System of Preferences (GSP), the African Grown and Opportunity Act (AGOA), and regional programs for the Caribbean and Andean countries.  The Europeans have the “Everything But Arms” initiative that offers free export access to least developed countries.

Each side has some pros, and also some cons.  Very broadly, the European program is broader (more products included) and more generous (zero tariffs) than anything the US offers.  But the US programs,  especially AGOA, offer more favorable “rules of origin,” which help poor countries export more complex products like garments, rather than being stuck exporting low-value commodities and products.

Neither the US, nor the EU provide full “duty-free, quota-free” access for all least developed countries (LDCs), which has been a key goal for development advocates in the long-stalled Doha Round trade negotiations.  In fact, LDCs have not seen any of the promised outcomes from the so-called “development round” of the World Trade Organization.  Their request to extend the soon-to-expire exemption to implement intellectual property rules for LDCs has failed to gain support from the US in particular.

If the US and EU want to demonstrate global leadership and do something very positive for the world, they could start by using the trade agreement negotiations to start a “race to the top” in creating economic opportunities for poor countries.

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