The CEA covers a wide range of initiatives to advance the transition to clean economies, from clean energy technology development to decarbonize industries, through to greenhouse gas capture and energy security. The FEA contains provisions to ensure corruption and bribery activities are criminalized, that enforcement of such is effective, and steps are taken to raise public awareness and promote the role of the private sector. The FEA also promotes the transparency and exchange of tax information among members’ tax authorities in order to improve tax administration and compliance. The IPEF institutional agreement sets up two bodies: the IPEF Council to oversee the operation of all of the IPEF agreements and consider any proposals for new members or new agreements; and the IPEF Joint Commission to consider the implementation of each of the pillar agreements.

Initial analysis of these three new texts reveals the following:

Cooperation is Key to Meeting Objectives

Like the earlier IPEF Supply Chain Agreement, these agreements focus on cooperation among the members as a key mechanism to advance their objectives. Unlike traditional trade agreements, the CEA and FEA do not set out detailed rules which can be enforced through binding dispute resolution, and, interestingly, do not contain any reference upfront to the importance of the rules-based multilateral trade system (although this was included in the Preamble of the Supply Chain Agreement). In the case of the CEA, the agreement seems to provide a menu of initiatives and areas from which parties can pick and choose according to their interests and means. The tax section of the FEA is also focused on improving cooperation through greater exchange of information.

This cooperation ethos also extends to the private sector, with the CEA and FEA highlighting the importance of stakeholder engagement, education and input, and social dialogue on these issues in order to achieve effective implementation.

Economic Inclusion and Labor Rights are Highlighted

Economic inclusion features prominently in the three texts. The CEA notes at the outset that each Party’s efforts to transition to a clean economy should be implemented in a manner that is “just and inclusive.” There is specific recognition that local communities and Indigenous Peoples have an important role to play in transitions to clean economies and Parties intend to partner with them in the implementation of the agreement. The FEA also emphasizes the importance of ensuring the benefits of free trade, investment and economic growth are broadly shared, and includes a specific provision advancing gender equality and women’s empowerment in anti-corruption programs.

In line with this Administration’s focus on a worker-centric trade policy, and the earlier IPEF Supply Chain Agreement, both the CEA and the FEA include a number of provisions promoting labor rights. Both agreements highlight, for example, the role of workers’ organizations as part of broader participation, with the CEA also including a number of provisions on the importance of promoting labor rights, employment, decent work and just transitions to a clean economy. Notably, the FEA includes specific provisions around migrant workers’ rights. The IPEF institutional agreement’s Preamble also refers to the importance of an Indo-Pacific region that has “the potential to achieve sustainable and inclusive economic growth.”

Implementation is Flexible and Capacity Building is Provided

Layers of flexibility regarding implementation are featured in these texts. This is not a surprise given the disparate grouping and their different levels of development and approach to these policy areas. While the agreements are legally binding, the drafters have allowed sufficient flexibility for countries to determine how they will implement many of the provisions. For example, many of the FEA’s provisions state that Parties ‘should,’ or ‘endeavor to,’ do something ‘where possible’ or ‘where appropriate.’ Many of the CEA’s key initiatives simply refer to ‘interested Parties’ working together on cooperative activities, rather than all Parties. Both the CEA and FEA also contain a specific provision that Parties are only required to implement the commitments within their available resources — a significant ‘out’ — and in the FEA, Fiji alone is designated to receive a longer transition period for some commitments.

Alongside this flexibility is an emphasis throughout the CEA and FEA texts on technical assistance and capacity building. Both agreements recognize sharing of information, best practices and other forms of capacity building will be needed to achieve its objectives. This is usually a big ask coming from ASEAN economies in trade negotiations, and no doubt was something they requested from these agreements, particularly given that market access was not on the table. Capacity building is also acknowledged as necessary in order to support the ‘inclusive’ and ‘just’ policies that are prescribed.

Building on the CPTPP for Anti-Corruption Provisions

The anti-corruption provisions in the FEA draw from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) text in several places, but also include additional provisions that are also not found in the UN Convention Against Corruption. For example, the FEA includes new provisions that each Party “may encourage its law enforcement authorities…to consider implementing measures to incentivize enterprises to develop effective internal controls,…as well as to encourage disclosures of misconduct.” Another new addition is that Parties should require an external auditor of an issuer’s financial statement who discovers a suspected offense to report it to the issuer’s management and monitoring bodies. Other advances include bringing some of the Financial Action Task Force’s recommendations into the FEA.

Withdrawing from the IPEF

Like the Supply Chain Agreement, the FEA and the IPEF institutional agreement allow Parties to withdraw only starting three years after the entry into force of the Agreement. Interestingly, a similar provision is not found in the CEA, where a more usual rule of simply giving notice for withdrawal applies (that withdrawal becoming effective after 6 months). This could signal that other countries were less willing to tie themselves down to a three-year rule in that sector, or because of the more ‘opt-in’ nature of many of the provisions in the CEA, a longer period before withdrawal was simply not considered necessary. But the three-year rule could also represent an effort by the United States to show its reliability as a partner by signaling that Washington can make a binding commitment past the upcoming elections.

Next Steps

The release of the final texts of these three new agreements is encouraging for the U.S.’ commitment to the Indo-Pacific region and to generating greater economic connections with this dynamic part of the globe. IPEF members will soon sign these three agreements, most probably in June when the Ministers meet in person. Work to implement the supply chain pillar is already in train, with members setting up the various committees and councils to undertake the specified initiatives. The members have already established five cooperative work programs under the CEA, and announced that the inaugural IPEF Clean Economy Investor Forum will be held in Singapore in June to foster greater investment in climate-related projects in the region.

The Missing Piece

All of the activity on the Commerce-led pillars highlights the missing piece of IPEF — the USTR-led pillar on trade. The IPEF institutional agreement includes reference to the not-yet-concluded Agreement on Trade and even refers to the Trade Commission that will be set up under that new trade agreement. Unfortunately, prospects for progress on the trade pillar remain slim to none during the U.S. election year. It is a good time for the U.S. to reflect internally on what adjustments could be made to that pillar to make it more acceptable domestically and more attractive internationally.

Jane Mellsop is the Director of Trade, Investment, and Economic Security at the Asia Society Policy Institute in Washington, D.C.

To read the full article as it was published by the Asia Society Policy Institute, click here.

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To read the original report from The World Bank Group, please click here.

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While global trade as a fraction of GDP may have peaked, trade in goods and services will continue to provide a substantial source of economic growth and welfare gains for both developed and developing countries in the years ahead. The research by Lewis et al. highlights the importance of structural change in influencing global openness, a factor that has been little studied in the literature thus far. The authors provide the important finding that the reduction in openness that has occurred since the global recession of 2008 can be attributed in part to ongoing structural change and the difficulty in reducing trade costs of goods further. Given their findings, the leveling off of global openness seen in the data does not necessarily point to increased trade protectionism.

To read the full report from the U.S. Federal Reserve Bank of Chicago, please click here.

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1. Eliminate taxes on imports used by U.S. workers 

In 2019, 62.1 percent of imports were either intermediate goods like motor vehicle parts or capital goods like machinery that are used by U.S. workers to produce goods.^[2] Eliminating taxes on these imports would support American manufacturing jobs, encourage companies to locate in the United States instead of abroad, and boost exports.

For example, in 2019 the United States collected more than $2.1 billion in taxes on imported motor vehicles parts.^[3] Eliminating tariffs on motor vehicle parts would make the United States more attractive to car manufacturers looking for the best location to assemble vehicles.

Figure 1: 2019 Imports by Category

2. Eliminate taxes on imported shoes and clothing worn by U.S. workers

The Biden administration has pointed out that every consumer is also a worker: “The President knows that trade policy should respect the dignity of work and value Americans as workers and wage-earners, not only as consumers.”^[4] 

The inverse is also true: every worker is a consumer, and in 2019 American workers paid an average 14 percent tax on imported shoes and clothing.^[5] 

Shoe and clothing tariffs pit a small number of workers who benefit from tariffs against the vast majority of the American workforce. For every worker in the apparel and footwear manufacturing industry, 1,258 Americans working in other industries pay inflated prices for shoes and clothing as a result of double-digit import taxes.^[6] 

Figure 2: Number of U.S. Jobs

Tariffs pit workers against one another even within the shoe and clothing industry. Jobs in shoe and clothing stores outnumber jobs in shoe and clothing factories by nearly 9-to-1.^[7] That doesn’t even count the millions of Americans who sell clothing and shoes at large department stores and sporting good stores.

Figure 3: U.S. Shoe and Clothing Jobs

The federal government collected $15.8 billion from taxes on imported shoes and clothing in 2019, the equivalent of $135,776 for every production worker in the apparel and footwear industry. On average, apparel and footwear manufacturing workers earned less than $44,000.^[8] Compared to the $15.8 billion cost of tariffs, it would cost taxpayers less to pay every person in the industry three times their current salary.

Figure 4: Average Annual Wage vs. Tariff Cost Per Shoe and Clothing Manufacturing Worker

The shoe and footwear industry includes more than just manufacturing and retail workers. More than 28,000 American fashion designers earned an average of $73,790 in 2019 creating new clothing and footwear. Millions more work in the transportation and logistics industries that help deliver such items to consumers.^[9] Eliminating tariffs on shoes and clothing would directly boost employment in these sectors. Nationwide, additional jobs would be created indirectly as the dollars American workers save as a result of lower-cost shoes and clothing were spent on other goods and services or invested in the U.S. economy.

3. Negotiate job-creating trade agreements 

The United States has been falling behind the rest of the world in negotiating trade agreements, and as a result U.S. exporters face higher tariffs than do most of their foreign competitors. As of 2016, U.S. exporters faced an average foreign tariff of 4.9 percent, ranking in the bottom ten of 136 countries ranked by the World Economic Forum.^[10] 

The United States has failed to implement a single new market-opening trade agreement since 2012. Since our last trade agreement took effect, other countries have signed 70 regional trade agreements, notably including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).^[11] The Trump administration’s U.S.-Mexico-Canada Agreement (USMCA)  is not included, since the North American Free Trade Agreement (NAFTA) had already eliminated most tariffs between the three countries.

To illustrate why the failure to negotiate new trade agreements has been costly for American workers, consider the automobile industry. Cars exported from the United States to the European Union (EU) face a 10 percent tariff. But because Canada and Mexico have managed to negotiate trade agreements with the EU, cars exported from Canada and Mexico will enter tariff-free once those agreements are fully phased in.^[12] 

Figure 5: EU Automobile Tariffs

This gives Canada and Mexico a big advantage over the United States in attracting investment from carmakers that want to export to the EU. For example, when BMW announced a new factory in Mexico in 2014, the company said, “The large number of international free trade agreements – within the NAFTA area, with the European Union and the MERCOSUR member states, for example – was a decisive factor in the choice of location.” When Audi chose to locate a new factory in Mexico instead of Tennessee in 2012, the company’s chairman said, “Good infrastructure, competitive cost structures and existing free trade agreements played a significant role in the choice of Mexico.”^[13] 

If trade negotiators from Canada and Mexico have been able to negotiate tariff-free access to the EU (or close to it), what’s keeping U.S. negotiators from doing the same thing? Unfortunately, the Biden administration has suggested it will put trade negotiations on the back burner. According to Treasury Secretary Janet Yellen, “President Biden has been clear that he will not sign any new free trade agreements before the U.S. makes major investments in American workers and our infrastructure. Our economic recovery at home must be our top priority.”^[14] 

This is the wrong approach. Negotiating good trade agreements and making economic recovery the top priority is not an either-or proposition. Pursuit of good trade agreements would create good new jobs for American workers and boost the U.S. economy.

4. Follow a trade policy designed to benefit more than just unionized workers

According to the Biden administration, “President Biden’s trade agenda will support all workers.”^[15] 

That is much better than pursuing a trade agenda that focuses on the 5.5 percent of the private-sector workforce who belong to labor unions without regard to the other 94.5 percent.^[16] 

Figure 6: Union Membership (Millions)

The goal of trade agreements should be to benefit workers by reducing barriers to international trade and investment, as opposed to imposing new multinational labor regulations or minimum wage provisions.

However, if labor provisions are to be included in future trade agreements, the Biden administration should consider guaranteeing every worker’s right to work without joining a labor union. Manufacturing workers in particular could benefit from this labor policy. In recent years, manufacturing employment in states with right-to-work laws has increased more than twice as much as in states that do not have such laws.^[17] 

Figure 7: Manufacturing Employment Change, 2010-2019

The White House has said that our trade and international economic policies must serve all Americans.^[18] If the Biden administration is serious about that, a good start would be for it to listen to Americans, who believe trade is more of an opportunity than a threat by a 4.4-to-1 margin.^[19] 

Figure 8: What Foreign Trade Means to the United States

According to U.S. Trade Representative Katherine Tai, “i think that for a very long time our trade policies were based on an assumption that the more we traded with each other and the more liberalized our trade, the more peace and prosperity there would be.”^[20] For the most part, that’s exactly what happened.

The problem facing American workers is too little trade liberalization, not too much. Workers continue to be harmed by U.S. taxes on imported inputs that they need to do their jobs, by import taxes that increase the cost of their shoes and clothing, and by the government’s failure to implement new market-opening trade agreements. A truly worker-centered trade policy should correct these shortcomings.

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To read the original report from the Heritage Foundation, please click here

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Rights advocates are increasingly urging U.S. trade negotiators to include new binding and sanctionable provisions that would protect human rights, women’s rights, and gender equality. Their efforts are understandable. Trade agreements have significant advantages as a process for advancing global rights. Even though Congress and the Executive incorporate global environmental standards and labor rights in U.S. trade agreements, they have refused to incorporate gender rights and broader human rights. The rationale behind the United States’ disparate treatment of rights in trade has received almost no scholarly attention. That is a mistake.

Using labor rights as a case study, this Article discerns the rationale for incorporating rights in U.S. trade policy. Properly understood, U.S. policymakers incorporate some rights in U.S. trade agreements because they view those rights as critical to protecting national industries and citizens from unfair trade conditions. Efforts to incorporate rights as the ends rather than the means to trade policy accordingly fail to resonate with policymakers. Those efforts also fail to appreciate the significant policy drawbacks of coupling trade law and international rights law, such as conflicts between international law and U.S. federal and state laws, and challenges to domestic processes in the United States and abroad. Nevertheless, there are alternative ways that the United States may protect global rights while preserving the sanctity of both regimes.

To view the original paper on the Social Science Research Network, please click here

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Since the 1990s, trade rules have promoted what economist Dani Rodrik has referred to as “hyperglobalization.” The focus has been on liberalizing capital flows with few—or no—constraints on where that capital goes. However, liberalizing capital flows without rules to foster fair competition incentivizes countries to vie for capital investments—and to engage in race-to-the-bottom policies to secure them. Many countries lower costs through labor rights suppression, environmental deregulation, and de minimis tax rates. They may also use subsidies and currency manipulation to further rig cost structures.

This suite of rules is essentially laissez-faire in its orientation. Any government effort to promote competition is disparaged as a protectionist undertaking. The only goal worth pursuing, in this arrangement, is low cost and high returns, regardless of how they are achieved.

However, this low-cost model is expensive. It pits workers in one country against workers in another, as returns to capital increase while returns to labor decrease; it promotes the degradation of the environment; and it robs nations of sufficient revenues to fund the basic needs of their people. Increasingly, these policies are seen as part of a broader violation of the social contract.

Because of these rules, the global trading regime, and bilateral and regional trade agreements, benefit certain sectors, and certain classes, within each country. Yet, these rules do not benefit all sectors, or all classes. We have papered over these structural concerns by relying on the axiom that trade provides an aggregate good. Yet by focusing on the aggregate good, we ignore that the rules of trade decide, at an individual level, for whom trade is good.

This axiom has also blunted our ability to appreciate the validity of the critiques of globalization, which we too easily attribute to misplaced populist grievances. Increasingly, we assure ourselves that if we simply do a better job in domestic policy areas, such as training and the social safety net, we will address any negative consequences arising from trade. While better domestic policy is certainly important, it is no substitute for reforming the rules of globalization, which themselves favor the elite at the expense of the working class.

It is possible to structure the rules of trade differently. Rather than writing rules to allow corporations maximum flexibility to exploit artificially low costs, we can write rules that promote fair competition. We can write labor and environmental standards that frustrate the ability of corporations to press a race to the bottom. We can write rules that prioritize the sovereign right to regulate over the corporate rejection of governance in the public interest. We can write rules to shine a light around which corporations are paying tax in which jurisdictions.

By writing rules that prioritize fair competition, we cannot only begin to correct the existing imbalance in favor of elites, but we can enable American workers and businesses to compete for customers around the world—all while preserving our values. Indeed, the latter is essential because if we value liberal democracy, we must place greater value on creating markets, both at home and abroad, that support the middle class and strengthen, rather than erode, its purchasing power. The facile argument is that purchasing power is enhanced through cheap consumer goods. However, more thoughtful analysis, such as that offered by Matthew Klein and Michael Pettis in their recent book “Trade Wars are Class Wars,” demonstrates the ways in which government policies promoting income inequality pervert trade and financial flows. These policies promote underconsumption by the people who are most in need, and whose expenditures would do the most to help the economy—the working class. In defending the existing rules of globalization, we focus too much on the consumer, and not enough on the worker.

For decades the prevailing theory has been that trade policy must be insulated from democratic pressures, under the theory that removing such pressures will produce more ideal economic outcomes. However, insulating policy from the influence of the voting public is antidemocratic, and, as we have seen, self-defeating: it leads to a revolt by that same voting public against a regime that, by design, dismisses their views.

Further, far from producing a trade policy free from special interest influence, this approach instead facilitates policy by special interests with preferred access to decision makers—in other words, elites, particularly at financial institutions, pharmaceutical companies, and big tech.

Because of this approach, for many years there have been “one size fits all” bilateral and regional trade agreements. Do these agreements work for developing countries? We have no idea. The U.S. experiment with Central America suggests there is much work to be done to understand the circumstances under which developing countries—and the various classes within those countries—benefit from trade agreements, and the circumstances under which they do not. Do benefits inure to the elite, with, at best, trickle-down benefits to the working class? 

A model that returns to basics allows us to focus on our priorities. The first American trade agreement was with France. Negotiated by Benjamin Franklin and ratified by the Continental Congress, it was called the Treaty of Amity and Commerce.

If trade agreements are meant to serve the overarching goal of improving amity between the parties, then it follows that we must focus on crafting rules that build positive relations between the parties. That is not achieved by rules that promote Darwinian behavior by stateless corporations that have no allegiance to any sovereign.

However, if these are truly to be agreements grounded in amity, then we must recognize that neither we, nor our friends, are perfect. Trading partners rarely comply with all their obligations. Usually it is clear in advance where they will fall short. The European Union does not want as much American beef or chicken as Americans would like them to want. Canada believes its dairy farmers in Quebec are worth saving, even if it means betraying pure market principles. Our trading partners feel the same way about certain sectors in the United States.

It is partly because of such frictions that the girth of these agreements has expanded. The rules grow ever more detailed as every form of possible cheating (or “chiseling,” as a former negotiator called it) is anticipated and more rules are written to prevent it. As a result, the rules constraining government also grow ever more detailed.

Yet this legalistic approach to trade ignores the reality that, for key sectors, determined governments will inevitably find a way to protect that which they wish to protect.

These elaborate rules are, therefore, both too strict and too porous. The rules are functionally deregulatory, but they do not end circumvention of trade rules in politically sensitive sectors.

It is time to take a more realistic view of what trade agreements can achieve. They can promote amity, if we accept that free market perfection is not achievable and, in any event, not the goal; they can promote values, if we think workers, the environment, and the tax base represent values worth prioritizing; they can promote fair competition, if we believe that competition is more important than phony “efficiencies.”

If we return to a model of amity, then we must also ask who the parties to these agreements should be. Not every trading partner seeks amity with us. Interdependent trade relationships with hostile foreign powers put us in a position of dependence on geopolitical rivals. That does not necessarily mean we should never trade with such countries; rather, it means we must consider under what circumstances we are willing to do so. The United States entered into the Treaty of Amity and Commerce in 1778 with France to solidify the relationship in the face of hostilities with Britain. Britain is, of course, no longer an enemy. Relationships evolve, and so should trade agreements.

As global trade tensions grow, we are now seeing discussion of new forms of cooperation between like-minded democratic allies that have much in common with the historic concept of a Treaty of Amity and Commerce—such as the D-10 grouping of leading democracies formed in 2014. What role can trade agreements like this play in promoting better relationships with countries that share our economic and democratic values, and in weaning our dependence on countries that do not?

This paper provides an explanation of each of the 10 chapters of a Modern Agreement of Amity and Commerce. The agreement sets out a more equitable trading regime with the overarching purpose of fostering positive relations between like-minded parties.

To download the white paper, please click here.

To download the full text for each individual chapter, please click here.

Beth Baltzan founded American Phoenix, and previously worked for the Office of the United States Trade Representative and the House Ways and Means Committee.

© Open Society Foundations Some Rights Reserved

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Worker rights are a prominent issue in U.S. FTA negotiations. Some stakeholders believe worker rights provisions are necessary to protect U.S. workers from perceived unfair competition and to raise labor standards abroad. Others believe these rights are more appropriately addressed at the International Labor Organization (ILO) or through cooperative efforts and capacity building. Since 1988, Congress has included worker rights as a principal negotiating objective in Trade Promotion Authority (TPA) legislation. The United States has been in the forefront of using FTAs to promote core internationally recognized worker rights. Labor provisions have evolved significantly since the North American Free Trade Agreement (NAFTA), moving from side agreements to integral chapters within FTA texts, with more provisions subject to enforcement. The conclusion of NAFTA renegotiations resulted in the U.S.-Mexico-Canada Agreement (USMCA), which replaces NAFTA and has a new labor chapter and enforcement mechanism. USMCA entered into force in July 2020.

Issues for Congress

In considering future TPA legislation (the current reauthorization expires in July 2021) or trade negotiations, Congress may wish to examine the application of worker rights provisions in FTAs. This debate could include

• The effectiveness of FTAs as a vehicle for improving worker rights and labor standards in other countries;
• The extent to which FTA partners are complying with labor obligations and whether dispute settlement provisions have been applied effectively;
• Whether USMCA labor provisions serve as a new template for future U.S. FTAs;
• The effectiveness of FTAs in providing technical assistance and trade capacity building; and
• The role of businesses in promoting U.S. labor practices abroad and conducting supply chain due diligence.

Cathleen Cimino-Isaacs is an Analyst in International Trade and Finance at Congressional Research Service

M. Angeles Villarreal is a Specialist in International Trade and Finance at Congressional Research Service.

To download the full report, please click here

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