Do You Want to Expand Foreign Investment and Trade? Build Inter-Ministerial Advisory Mechanisms

April 26, 2021

The United States has entered into bilateral and regional free trade agreements (FTAs) with just 20 of the other 163 members (or 12 percent) of the World Trade Organization. Most U.S. FTA partners represent either developed markets, such as Canada and Australia, or emerging markets, such as Chile and Colombia. However, in the case of the United States Agency for International Development (USAID), our missions partner mostly with “frontier markets,” like Ghana and Paraguay. Though the United States has initiated a few FTA initiatives with frontier markets, these markets often pose significant challenges given their smaller market size, infrastructure gaps, and ill-equipped institutions. Rather than prematurely engaging with a partner country in highly technical and lengthy discussions on the FTA itself, partner countries can work with USAID to foster their own inter-ministerial advisory mechanisms, which offers a more practical and necessary exercise. This can serve far more immediate economic development objectives where USAID has a comparative advantage, for reasons explained below.

How USAID (and Implementing Partners) Can Enhance Whole-of-Government Capacities

Laying the groundwork for a frontier market trade agreement focuses on “shaping up” our partner government’s own government-wide capacities for assessing the trade impacts of potentially costly industrial policies, opaque government procedures, and burdensome informal requirements and eliminating those that pose unnecessary obstacles to trade. USAID mission representatives can play a key role in building closer bilateral relations, so that a partner government may come to appreciate the costs of conducting “government by usual,” while highlighting how enhanced coordinating capacities fosters foreign investment, business, and revenues.

Normally, the United States and a prospective FTA partner have already been engaged in a multi-year dialogue, based on a trade and investment framework agreement (or TIFA). These consultations aim to enhance bilateral cooperation and resolve specific market access issues. To engage in these highly technical TIFA discussions, each partner typically must coordinate among a wide variety of government agencies. Yet, for a frontier market government, it may be the first occasion to ever form, let alone coordinate an inter-ministerial team of senior and working-level officials.

Once the United States initiates an FTA negotiation, even an existing TIFA partner may face a steep learning curve as the U.S. draft text may consist of 30 chapters, covering agriculture, tariffs, customs, and sanitary and phytosanitary measures—to name just a few.  In preparation for the U.S.-Chile FTA negotiations, for example, the Chilean government knew it needed to assemble and coordinate a commensurate group of subject matter experts from relevant ministries to advise its President. Fortunately, Chile was already well-prepared!

Success Story: Chile’s Decision to ‘Rationalize Government’

As far back as 1995, Chile issued Decree No. 419 creating its Inter-ministerial Committee on International Economic Relations (CIREI), composed of the ministers of foreign affairs, finance, the economy, and agriculture, to advise the president on international trade negotiations. In sum, CIREI institutionalized a standing committee (with subcommittees) of cross-ministerial, subject matter experts to analyze and coordinate the broad policy questions and regulatory issues that would arise during FTA negotiations. The same decree also created a parallel Private Sector Participation Committee as a permanent advisory body composed of experts, academics, and private sector representatives to inform CIREI on specialized industrial and civil society matters.

Why is this “infrastructure” of inter-ministerial coordination mechanisms and advisory bodies so important to establish—with or without an actual trade agreement?  In short, these consultation procedures ensure that domestic regulations serve whole-of-government objectives. Interagency coordination and advisory bodies allow disparate voices to be heard, channel the input, and take information received into account in final decision-making. These procedures, when institutionalized in law, serve to bolster public confidence in governance, attract foreign investors, and keep them engaged, knowing that open, predictable, and legitimate processes help guarantee that all views may be heard.

Chile’s exceptional foresight and institution-building enabled its people to reap the substantial economic and developmental benefits of the 2004 U.S.-Chile Free Trade Agreement. As a result, U.S.-Chile two-way trade in goods nearly quadrupled from $8.3b in 2004 to $22.8b in 2020.  In 2021, the Milken Institute ranked Chile the #1 country in Latin America for prospective foreign investment. USAID, in collaboration with other U.S. trade agencies, can help build the interministerial and private sector advisory infrastructure to ensure more responsive and coherent regulatory outcomes essential for improving U.S. trade relations, expanding economic growth, and raising living standards.

Next Steps for Establishing Inter-ministerial Coordination

The good news is that while our partner countries cannot control the world prices of oil, natural gas, or wheat, they have full authority over what matters most—their own government. We can help these countries lay the groundwork for an agreement in two ways. First, we can encourage  them to promote the development of procedures to facilitate consultation, coordination, and review among ministries. Second, we can advise them on the formation of central coordinating bodies or mechanisms to help oversee them.

The new Good Regulatory Practices (GRP) Chapter of the U.S.-Mexico-Canada Agreement provides important guidance for establishing such interagency consultation mechanisms and bodies. Furthermore, the United States is advancing this GRP framework in signing a Protocol on Trade Rules and Transparency with each Brazil and Ecuador. These commitments require governments to establish external procedures for public consultations, as well as internal procedures to channel and take into account the information received across relevant ministries in the systemic review and analysis of draft regulations. This government-wide coordination also serves to “weed-out” unnecessary and costly barriers to trade and investment before they become international concerns.  In this sense, a U.S. FTA (or Protocol) at base represents an international agreement to domestic government reform.

USAID trade experts serve as delegates in U.S. trade negotiations and as representatives on U.S. interagency trade advisory bodies and can provide our partners in frontier markets advice and counsel on improving communications among ministries and private sector representatives. Fostering government-wide capacities for regulatory review and planning, offers our partner countries a valuable "two for one."  It enhances the trade and investment environment in the near term while institutionalizing core procedural reforms embedded in our U.S. trade agreements with an eye towards the future.