Executive Summary

Trade policy has made little progress over the last decade. Since 2000, the U.S. has reached no major multilateral trade agreement and has left its own trade regime static. The WTO's Doha Round has been stalled for years, and in the Bush era trade debates devolved into a series of emotional arguments over a free-trade agreement program that touches only a small fraction of Americas trade and has had little impact on growth, employment or national security.

President Obama has a chance for a fresh start, and in most ways his global-economy policy has in most ways started out very well. The administration has taken a strong line against the revival of protectionism, which, as history has taught us, would otherwise pose a threat to recovery from the financial crisis. Policymakers have worked with Congress to ease public anxieties through a major expansion of Trade Adjustment Assistance (TAA), and the White House has embraced an ambitious Strategic and Economic Dialogue with China on macroeconomics, climate change and security policy. Focus is now turning toward legislation that would upgrade the Food and Drug Administration's (FDA) inspection systems.

Trade liberalization has been slower to show progress. This reflects the fact that the trade agenda Obama inherited contributes much less than trade policy could to his new administration's main economic and foreign policy goals.

Over the next year, the administration needs first to clear the decks, and then shift the trade agenda to one that directly supports its top objectives: recovery from crisis, improved relations with the world generally and Muslim states in particular, and developing new, high-tech sources for America's future growth, innovation and high-wage employment. As the Obama administration works to pull the nation out of its economic crisis, trade policy should accordingly work to spur growth by promoting innovative new industries and clean technologies at home, and by supporting the globe's poorest citizens and reconciliation with the Muslim world.

Today's agenda has three big problems:

• Archaic Tariffs: First, the U.S. trade regime contains archaic tariffs that fail to protect jobs, but are very effective at obstructing growth and job creation in poor countries and large majority-Muslim states. In so doing, the incumbent tariff regime conflicts with America's development and security goals. To date, the administration has not proposed any major overhaul.



• Stalled Free Trade Agreements: Second, the Free Trade Agreement (FTA) program that has dominated trade debate for the last decade is delivering only modest results for the U.S. and poor results for our partners, while creating intense discord. The FTA program's effectiveness seems to be waning anyway, as companies value the flexibility of global supply chains more than the tariff benefits they receive through compliance with FTA rules of origin.



• The Doha Hurdle: Third, the intense focus on agriculture in the Doha Round of the World Trade Organization (WTO), though a good idea in its own right, has not led to multilateral trade progress on farm trade reform, but has nevertheless blocked potential progress on larger industrial sectors.

The administration and its chief trade negotiator, U.S. Trade Representative Ron Kirk, face a daunting challenge in clearing the decks of the agenda they inherited. Over the next year, Kirk should work to pass the remaining three free trade agreements (with Panama, Korea and Colombia) and then shelve efforts to promote additional FTAs for the time being. Meanwhile negotiators should make a major effort to conclude the Doha Round.

Once the decks are cleared, the administration should center trade policy on a new agenda that does more for American economic and national security. This new agenda would include:

• Tariff Reform: Providing broad tariff waivers for the low-income countries and large majority-Muslim states now excluded from the FTA network and other, more ambitious preference programs.



• Broad, Sectoral Agreements: Concluding WTO "sectoral" agreements among the world's major economies (though not necessarily all WTO members) covering goods and services in the big new industries likely to be the sources of growth, innovation and job creation for the United States in the next decade, including information and media industries, health technology and services, clean energy and environmental technologies.



• Regional Initiatives: Promoting regional initiatives with Europe and Asia, which should be focused not on existing disputes or regulatory issues, but on issues likely to emerge in the next decade: the treatment of nanotechnology, biotechnology, privacy and other technologically driven issues. Additionally, or alternatively, the Obama administration should work to rationalize the existing fragmented FTA networks in Latin America and the Pacific.