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US Announces New Trade Plan, BRICS Conspicuously Absent

Fresh on the heels of the announcement of a major bilateral trade effort with the EU, the U.S. is now looking towards another large deal with twenty of its largest trading partners, reports the WSJ. This negotiation would focus on the export of services. The specifics will be hammered out over the next few months at talks in Geneva, but the basic contours are already clear:

Services exports typically don’t face tariffs, as goods sold overseas often do, but barriers still persist. Those include rules that require a local presence or ownership to sell a service in another country and professional licensing requirements that could make it difficult for an accountant, architect or attorney to work abroad.

A services agreement among 20 or more of the world’s largest traders would provide a consistent set of rules for U.S. companies to follow.

This trade pact is important in its own right, but the biggest news is that China and Brazil are being left out of the negotiations entirely.

This looks like a continuation of the Obama Administration’s trade approach of working around the BRICS. (Besides the Atlantic free trade agreement with the EU, the Obama administration is pursuing the Trans Pacific Partnership involving a free trade agreement among a group of non-BRIC Asia-Pacific economies.) The service trade treaty would be a positive development for everyone involved, reducing non-tariff barriers and promoting competition in services. But the BRICS will have none of it, as many in those countries fear the impact of better capitalized, more technologically advanced, and more efficient foreign rivals.

The BRICs have also been slow to embrace liberalization in other areas of trade. Their defensiveness helped kill the Doha Round (though American farmers had a role in that as well).

Meanwhile, the U.S. is moving away from forums in which the BRICS can veto progress, looking instead to make bilateral or multilateral deals with partners like Japan, Korea, and Europe. Tough negotiations lie ahead, but these other countries have been more than happy to respond.

Seduced by the rhetoric from thoughtless observers about their inevitable rise to global dominance, the BRICS as a group overplayed their hand at the WTO. As a result, the U.S. and other trade-dominant economies are moving the action to other forums where the BRICS don’t have a seat at the table. Ultimately the BRICS will want to get in to these new trading arrangements, but their ability to renegotiate the rules at a later stage will be limited.

One lesson to policymakers everywhere: Ignore almost all the chit-chat you hear from fashionable pundits and “global statesmen” at places, like Davos, where the inevitable rise of the BRICS has been the hot story of the past half-decade. The conventional wisdom suffusing the rarefied air at such venues is almost always wrong; believing what the pundits and the pontificating politicians and CEOs say is a great way to waste time and lose influence.

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