Tuna lesson for free trade pacts

Edward Gresser, Project on Trade and Global Markets Progressive Policy Institute, Washington, The Straits Times, Asia News Network, Singapore

The Bush administration, no doubt, expected angry reactions to this year's steel tariffs and farm subsidies.

By contrast, the sudden emergence of Southeast Asian alarm over tuna fish must have come as a nasty surprise -- because, in this case, the administration was trying to do something good.

Unlike steel, the tuna debate involves no new tariffs on Asian goods. In contrast to the farm Bill, it subsidizes no producers competing with Southeast Asian rice farmers.

Rather, ASEAN governments are concerned because the United States might be opening its tuna market by removing tariffs for a small South American country thousands of kilometers away.

The dispute is worth a close look, because it carries a warning about much larger problems that could arise not from new tariffs and trade barriers, but from careless enthusiasm for new trade agreements.

With big trade agreements at the World Trade Organization (WTO) years away, governments in the Americas, Asia and Europe are all negotiating smaller agreements with individual countries. For the U.S., the first two partners are Singapore and Chile.

After these might come as many as 12 more countries, from Central America and southern Africa to Morocco and Australia.

Singapore, likewise, has worked with Japan and Australia; Mexico and Chile have done still more.

The European Union remains far ahead of the pack, with no fewer than 27 bilateral free-trade agreements.

Such agreements can have good effects. They can help governments think through complex emerging issues (services trade is a good example) on a limited scale before tackling them at the 144-member WTO.

They can contribute to foreign policy and security goals, as the U.S. agreement with Jordan does.

And, as the U.S.-Singapore negotiations hope to do, they can help push regional economic integration when ambitious goals -- like the Asia-Pacific Economic Cooperation forum's "free and open trade in the Asia-Pacific" commitment -- prove hard to realize.

But too many such agreements may do more harm than good -- and ASEAN's unexpected tuna problem shows why.

Tuna trade is fairly simple when compared to commodities, like clothing or semiconductors, with many producers and large two-way flows.

The U.S. buys about 130 million kg of canned tuna per year from six major suppliers. Most comes from Singapore's neighbors -- Thailand, the Philippines and Indonesia supply about 110 million kg of that amount.

The canneries that chop up the fish and put them in containers are valuable parts of the regional economy, supporting the jobs of about 30,000 Thais, most in Bangkok, but about 3,000 in Songkhla as well, in addition to about 20,000 Muslim Filipinos on Mindanao.

Their employers, and the ASEAN governments, are worried because since January, the Bush administration has been trying to expand a program known as the Andean Trade Preference Act.

Dating to 1991, this program aims to help farmers in Bolivia, Colombia, Ecuador and Peru find alternatives to narcotics production.

For example, duty-free treatment for flowers has helped Colombia develop an industry that employs about 75,000 rural people to grow and cut about 600 million roses sold in American florist shops every year.

After the Andean program's creation, though, the U.S. moved on to conclude the North American Free Trade Agreement and expand another program, called the Caribbean Basin Initiative.

As a result, the Andean countries lost some of the advantages they gained in 1991. So when the Andean program expired this year, the administration and Congress decided not simply to renew but also expand it.

One new feature was the elimination of tariffs on canned tuna fish -- an important product for Ecuador which, at 13 million kg per year, is the fourth major supplier to the U.S. tuna market.

A good turn for one country, however, meant headaches for five others. With American tariffs on canned tuna running at 12.5 percent for the largest-volume imports, the Thai, Indonesian and Philippine governments fear that duty-free privileges for Ecuador will make the canneries move out of Songkhla and Mindanao to set up in South America.

The fifth and sixth largest suppliers -- Fiji and Papua New Guinea -- may have still more cause for concern: Canned tuna made up fully a third of Fiji's exports to the U.S. last year, and a fifth of Papua New Guinea's.

So the proliferation of free-trade agreements and trade programs, all well-intentioned and reasonably effective, unwittingly created a "cascade" in which each new initiative meant disadvantages for others.

First, Nafta and the Caribbean program eroded the Andean one; then the attempt to fix that problem created a new one for Southeast Asia and the Pacific.

The Bush administration and Congress are now charged with working it all out, without breaking promises to the South Americans but also preserving some fairness for Southeast Asia or the Pacific islands.

This particular case is limited and manageable. But it provides a cautionary example of the much more complex problems that can emerge as countries negotiate more bilateral agreements and create more preferential programs, each involving thousands of different products, than they did in the past.

One of the great advantages of the WTO system is that it simplifies trade as it removes barriers.

Over time, if governments concentrate on bilateral agreements at the expense of the WTO, they might wind up complicating the world economy and thus, in effective terms, closing it, rather than simplifying and opening it.

This trend is still, for the moment, only a potential problem. The trading world's problems are still the result of too many new tariffs.

But the tuna case has shown that equally challenging problems might arise from the negotiation of too many agreements.