Alumni profile

On April 16, congressional leaders introduced a bill granting the White House “fast-track authority” to negotiate a historic trade deal between the United States and 11 Pacific Rim nations. The bill, a rare bipartisan compromise, could smooth passage of the proposed Trans-Pacific­ Partnership (TPP) by allowing President Obama to submit the pact for a simple up-or-down vote, insulating it from drawn-out debate over amendments. With parties to the deal repre­senting 40 percent of global GDP and about one-third of world trade, the stakes are remarkably high. 

With discussion about this crucial deal heating up, Chicago Harris invited five distinguished alumni with expertise on trade matters to share their perspectives. The forum that follows sheds valuable light on the most important issues to consider when evaluating the TPP and other international agreements, deepening our under­standing of trade policy and globalization at a pivotal moment.

 

Exporting U.S. Values

Trade deals can help strengthen global environmental standards

As negotiations over the Trans-Pacific Partnership (TPP) free trade agreement are being finalized, it’s important to remember that modern trade negotiations are as much about exporting U.S. products as they are about exporting U.S. standards for labor and the environment. Trade agreements can have enormous consequences on the environment, but if done right, they can present the United States with a unique opportunity to significantly raise environmental standards around the world and shape global environmental policy for years to come.

That’s why it’s crucial that the U.S. lead the effort to establish robust environmental standards in the Asia-Pacific region. Other countries with long records of environmental abuse, like China, are negotiating their own trade agreements in the region, and if the U.S. isn’t writing the rules for global trade, China will. Without U.S. leadership in the region, we will likely see irreversible damage to our environment and American workers placed at an even greater disadvantage. Therefore, it is imperative that U.S. trade negotiators continue to lead on TPP and pursue environmental standards that are strong, binding and fully enforceable. 

At a minimum, this means we should pursue a level of environmental protection that is consistent with the bipartisan May 10, 2007, trade framework. The May 10th Agreement represents trade principles agreed upon by Congress and the George W. Bush administration before passage of the Colombia, Panama, Peru and South Korea free trade agreements. These principles required the trade agreements to adhere to seven major multilateral environmental agreements (MEA) to which the United States was already a party. The MEAs tackle a number of environmental challenges ranging from the protection of endangered species and marine wildlife to the reduction of ozone-depleting substances.

Although the May 10th Agreement serves as an adequate baseline for negotiations, future trade agreements should build on the agreement and commit our trading partners to additional standards that address emerging environmental issues. TPP gives us the chance to require new conservation and fisheries provisions that go beyond current international agreements. It should also include new robust standards to combat wildlife trafficking and illegal logging. 

Finally, while essential, establishing high environmental standards is not enough. We must learn from the mistakes made in NAFTA. Environmental standards should be subject to the full scope of enforcement mechanisms and placed on equal footing with commercial violations. If consultation and other avenues fail, then violations should be handled through the same dispute settlement procedures that apply to the other provisions in the trade agreement. 

At their best, our trade agreements are an opportunity to level the playing field for American workers and broaden our environmental protection efforts. But if one of our trading partners fails to live up to its commitments, the United States should have the ability to hold it accountable.

Many Americans have expressed concern that entering into new trade agreements will hurt small businesses and middle-class families and put us in direct competition with countries that have poor environmental standards. These concerns are understandable. But by making strong, enforceable environmental protections the foundation of our trade agreements, we can raise environmental standards around the globe, giving us the ability to address global environmental problems like climate change while ensuring American workers and businesses are competing on a fair and level playing field.

Michael Quigley, AM’85, is the U.S. Representative for Illinois’ 5th congressional district.

Business Without Borders

U.S. companies seeking markets overseas have huge growth potential

Exports have been a key driver in our economic comeback since the financial crisis took hold in 2009. U.S. exports hit a record $2.35 trillion in 2014, $762 billion above their level in 2009. The United States has posted five consecutive years of record exports, at a cumulative growth rate of 37.2 percent compared to 33.2 percent globally, and 23.4 percent across the world’s advanced economies. 

U.S. exporters are in places you might not expect to find them, like at our alma mater. Foreign students studying in the United States make up one of the largest services export categories, contributing more than $27 billion to the economy in 2013–14.

A number of federal organizations contribute to fulfilling the U.S. export strategy, with responsibilities ranging from negotiating trade treaties to financing export sales. Among these is federal support provided to U.S. exporters, including export promotion, education and advocacy. 

This area of services is administered uniquely by the International Trade Administration (often referred to as the U.S. Commercial Service), a division of the Department of Commerce. With staff located both domestically and internationally (there are more than 100 domestic offices and locations in over 70 countries), the organization brings breadth and expertise to its U.S. client base, helping companies to grow export sales volumes. To do that, the Commercial Service offers specific services to U.S. clients, addressing needs related to documentation, costs, market research, local competition and introductions to potential buyers. Our website, www.export.gov, provides a variety of information for businesses, ranging from the basics of exporting to detailed market intelligence, trade/economic data, required documentation, logistics process and information about getting paid.

With only 1 percent of the roughly 30 million U.S. companies currently exporting, and 95 percent of the world’s customers outside the U.S., the potential for growth is high. The Commercial Service actively recruits and helps organize matchmaking meetings and market briefs both at domestic and overseas trade shows and missions, focusing largely on assisting small and medium-sized U.S. companies, where the need for basic guidance is often more pronounced. 

Exporting benefits a company by maintaining competitiveness. There is abundant evidence that international diversification has helped U.S. exporters weather economic downturns better than domestically oriented competitors. When it comes to developing sales strategies, the biggest risk is often the failure to consider the marketplace beyond U.S. borders.

Having a plan and committing enough resources to expansion is essential for a company’s international success. Making it happen successfully requires understanding the foreign market, understanding which rules and regulations apply, and having a strategy for contacting and communicating with local businesses in-country. Thankfully, U.S. businesses venturing into foreign markets don’t have to do it alone. 

When it comes to encouraging new opportunities, new customers and new avenues of growth, my colleagues and I at the Commercial Service find truth in the old laugh-line: we’re from the government, and we are here to help. 

Susan Widmer, MPP’93, is the director of the Northern New Jersey Export Assistance Center in the U.S. Department of Commerce.

Honoring Commitments

To ensure fairness, trade deals must be properly monitored and enforced

In foreign policy news, trade agreements tend to be an infrequent but cyclical item, popping up when the U.S. government starts or finishes negotiating new ones. Right now, the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership negotiations are taking up much of that bandwidth. But I’m always somewhat surprised by how little attention is given to the existing agreements the United States has – how they function, what they mean for U.S. firms and what the U.S. government does when problems arise. 

Trade agreements represent a fascinating application of public policy; that’s one of the reasons I chose a career in this area after graduating from Chicago Harris in 2001. While trade itself is primarily a matter of economics, the agreements that govern it add a distinct public policy character. 

The United States is party to many trade agreements, from the multilateral pacts of the World Trade Organization, to the regional Central American Free Trade Agreement, to bilaterals like the recent U.S.-Korea agreement. But all of them share certain traits. To grossly (but usefully) simplify, they provide U.S. exporters and investors with guarantees of access to foreign markets, fair treatment in those markets, and transparency and predictability in matters related to commerce. I think of them as replicating the U.S. marketplace in countries abroad, offering the same careful balance of regulation with openness and opportunity.

But just like in the United States, where authorities need to enforce the rules of the marketplace in order to ensure fairness, trade agreements need to be monitored and problems need to be addressed. Opaque rules, unnecessarily burdensome processes or requirements and flat-out discrimination are just some of the problems that can indicate trade agreement noncompliance. However, one factor makes solving problems in trade agreements rather complicated: each partner government has the authority to enforce compliance.

When foreign governments aren’t honoring their commitments, the U.S. government first engages them to fix the problem by voluntarily bringing their behavior back into line with the agreement’s obligations. That way, the commitments of the trade relationship are upheld, and trade continues to flow. But if the United States can’t achieve compliance, then it can use the agreement’s dispute settlement provisions to demand its rights. Dispute settlement is similar to going to court in the everyday world – it demands lots of lawyers, time and resources, and should be considered a last resort. Fortunately, most issues never reach that stage, as it’s in both countries’ interest to resolve the problem in a quick, low-profile manner. 

The public policy angles here are manifest. Policymakers must balance the interests of the various industry and state actors involved, the connections between micro- and macro-level concerns and the operations of the World Trade Organization, to name a few factors. They can also prove complex at times, and far better minds than mine have spent careers grappling with their nuances. So I keep it simple, and frame my thinking in terms of a basic question: Is the (international) market working? Are trade agreements being honored, delivering their full benefits to U.S. exporters and investors? 

With most of the world’s consumers outside the United States, it’s vital to our economy that our industry is able to access those markets. That’s my career. But, as for any University of Chicago graduate, I always keep the big picture in mind. I think it can be fairly said that commitment to the health of the architecture of the global system is a strong feature of post–World War II U.S. foreign policy. It’s thrilling to be part of that undertaking in a small way, even if it doesn’t make the news.

John Liuzzi, MPP’01, is acting director for trade agreements negotiations and compliance at the U.S. Department of Commerce’s International Trade Administration. These are solely the views of the author and are not necessarily those of the U.S. Government.

The Cooperative Impulse

Trade agreement designs may vary, but they all follow a common logic

International cooperation is challenging. Even though there are tremendous advantages to resolving differences peacefully and countless opportunities for realizing joint gains through cooperation, many states do not trust one another. Some fear their potential partners might cheat, and others worry about unpredictable shocks in the international environment that might alter their basic interests in cooperation. 

Given these harsh political realities, one might jump to the conclusion, as some scholars and policymakers do, that international cooperation is shallow and fragile. Quite the contrary: cooperation is not only possible, but often consequential. Scholars investigating the viability of international agreements in various cases have demonstrated that international law can help states avoid conflict and cooperate for mutual benefit. Through my own work with the Continent of International Law (COIL) research program – in which I developed a dataset featuring a random sample of international agreements to test a range of hypotheses – I found a strong underlying common logic to the way states design international agreements that transcends substantive issue area. While choosing the correct substantive provisions obviously matters greatly to the success of any cooperative agreement, I argue that design and procedural provisions matter, too. 

When chosen correctly, the detailed institutional design provisions of international law help states confront problems of distribution, enforcement, commitment and various kinds of uncertainties, and thereby increase the incidence and robustness of international cooperation. In fact, even though international law exists under anarchy, it is for the most part designed rationally – in ways that make sense only if actors are seeking to solve their joint problems and to stabilize the solutions. Those negotiating do not neglect the details as they would if the law did not matter in their calculus. Nor do they simply follow a template because it is the “correct” way to make law or because they are copying without thinking. Negotiators meticulously tailor the law to their cooperation problems. 

Just what kinds of design provisions are used to solve problems? Drawing on game theory and contract theory in economics, I have developed hypotheses about flexibility provisions, monitoring, dispute resolution, punishment provisions and even voting rules. Consider the first: flexibility provisions. In making the case for diplomacy over international law, George Kennan once stated, “Law is too abstract, too inflexible, too hard to adjust to the demands of the unpredictable and the unexpected.” But as the COIL data showcase, the large majority of international agreements feature some kind of flexibility to adjust to the “unexpected,” even though the specific kind of flexibility employed will vary according to the underlying problems being solved. 

Trade agreements are no exception. In fact, trade agreements are particularly likely to have finite durations so that they can be renegotiated in response to changes in the international environment. Trade agreements, like those governing commodities, tend to be significantly longer than monetary agreements governing exchange rates. Why? The shocks to commodity agreements take longer to manifest than those in the frenzied world of international finance. Both types of agreements stand in sharp contrast to human rights agreements, which tend to be of indefinite duration and which are rarely changed, or to security or environmental agreements, which stand somewhere in the middle on this dimension. 

Trade agreements are relatively more likely than other types of agreements to include escape clauses. Unlike renegotiation agreements, escape clauses do not allow adjustment of the agreement; rather, they allow states to temporarily escape cooperation and then return to an unadjusted agreement. Escape clauses are usually conceived of as responses to domestic or exogenous shocks that make these terms politically difficult. The design of these escape clauses differs significantly and in a way that can be explained by the underlying problems they are trying to solve. 
Similarly, design provisions for monitoring vary according to the specific problems being solved. Centralized monitoring is necessary for certain multilateral trade agreements in which cheating would be hard to detect without it. But some bilateral trade agreements govern action that is so transparent that countries can just depend on simple reciprocity. 

It is important to note that not all trade agreements are designed the same way, though they follow a common logic. The COIL research program gives scholars and policymakers a set of variables to consider when choosing the design provisions that will most likely increase the likelihood and stability of cooperation in any given situation.

Barbara Koremenos, MPP’93, is an associate professor in the Department of Political Science at the University of Michigan. Her book, The Continent of International Law: Explaining Agreement Design, is forthcoming from Cambridge University Press.

Who Controls the Web?

The debate over Internet governance will affect trade in substantial ways. 

It might be said that international trade represents not only the exchange of goods and services, but also the exchange of ideas. In this vein, the Internet has emerged over the past 25 years as the greatest marketplace for ideas the world has ever known. While it is a critical space for trade in tangible products, the Internet also plays a key role as a platform for the exchange of ideas, information, concepts and norms. It’s no wonder, then, that a fight over Internet governance is underway. 

In December, the United Nations General Assembly will hold a high-level meeting that may help shape how the Internet is governed and regulated at the global level. The meeting’s mandate is to review the past ten years of activities since the 2005 World Summit on the Information Society (WSIS), where UN member states signed a global agreement called the Tunis Agenda. This agreement laid out “action lines” describing ways that technology can assist in international development, and ambiguously defined the roles for nation states, the private sector, the technical community and civil society in Internet governance. While the agreement solidified the concept of “multistakeholder governance,” some governments have been actively seeking to strengthen the government role in controlling the Internet. This issue will be hotly debated in advance of and at the December meeting.

Russia, China and Saudi Arabia have been the most proactive in seeking a greater state role. Especially unnerving to such regimes is the way that Internet platforms could serve to foment domestic dissent as they did during the Arab Spring. These states are joined by a much broader group of countries that fear an unbridled Internet, with concerns ranging from lax cybersecurity to child exploitation to contentious online content like cartoons of the Prophet Muhammad. The June 2013 disclosures by Edward Snowden of extensive U.S. surveillance activities seemed to confirm long-simmering fears about online privacy and the power of the U.S. government and industry over the Internet. 

In response to these fears and to pre-empt any attempts to drastically tilt Internet governance toward state control, the Obama administration indicated in March 2014 its intention to hand over control of the Internet Assigned Numbers Authority (IANA), a largely clerical but symbolically important function whereby the U.S. government has final say over changes to the Internet’s root zone that matches domain names with IP numbers. Proposals for what entity assumes these responsibilities are currently being considered. The transition, which is supposed to occur in September, will likely be delayed due to the complicated nature of the system and the political sensitivities involved. 

Who controls the Internet matters in untold ways, but the impact on trade will be substantial. A good example of how these tensions between stakeholders are playing out can be found in the trade of domain names at ICANN, the organization that manages the Internet’s domain name system. ICANN is moving ahead with approving and introducing new top-level domains like .eco and .gay. Amazon, the Seattle-based company, has applied to become the registry for .amazon; the Brazilian government has objected and has pressured other governments to join its protest. Where Amazon sees a need to protect and promote its trademark, Brazil sees an obligation to protect and promote the name of an important geographic asset. French government officials are also up in arms about the allocation of .wine, which they see as a threat to longstanding protections for the names of French vintners. 

The extent of government control and regulation on the Internet influences other debates around the appropriate role of governments in structuring their regulatory systems for technology products and services. A number of governments have either enacted or are considering provisions to require data on their citizens be held on computers within their countries’ geographic boundaries, a concept known as “data localization.” Whether these policies stem from purely mercantilist ambition to enhance local technology industries or from a genuine concern about data security and privacy, they can be viewed as a new non-tariff barrier (NTB), especially since they could upend the entire business model of cloud computing. In a more traditional NTB of import substitution, the governments of India and Indonesia are establishing policies to require technology products like smartphones to be sourced from certain percentages of local parts and labor. The implementation of such rules will drastically shift how technology products and services evolve, with significant trade and economic implications. 

More than anything, the UN meeting will refine the concept of multistakeholder Internet governance, clarifying where and how stakeholders should lead and control. There are indeed areas where states must be deeply involved, such as cybercrime and taxation. But there are legitimate fears about the politicization of the technical processes that have so far successfully shepherded the Internet. Some worry that the distributed set of institutions through which the Internet is currently governed will be replaced by a committee of uninformed bureaucrats. Others question the representativeness of the private sector, civil society and other influential groups. 

The WSIS review presents an important inflection point in the ongoing fight over who controls the Internet. Striking an appropriate balance among stakeholders will be difficult. Key to ensuring a positive outcome will be recognizing government grievances and identifying ways to address them without upending the pillars that have made the Internet an essential medium for trade in information and ideas. A real and global information society demands no less.

Christopher Martin, MPP’06, is a senior manager at Access Partnership, an international government affairs consultancy.