This thought came to mind as I read the recent outpouring of negative commentary about bilateral and regional trade deals. They have many enemies, and not just among protectionists whose knees jerk in defiance whenever somebody suggests cutting a tariff. Yet these pacts are hardly the mediocrities their critics make them out to be.
“The passion for such agreements may be misguided,” wrote the editors of The Economist, an influential British magazine that is a good friend to the free-trade effort, in a recent issue. They accuse these deals of “artificially diverting trade away from excluded countries or clogging up commerce with fiendishly complicated ‘rules of origin.’” One result, say the skeptics, is a slowing down of global trade talks. To make matters worse, argued editorialists at the Kansas City Star, accords not involving the United States “increasingly put American exports at a disadvantage.”
I’m willing to concede a general point: These bilateral and regional deals aren’t “free trade” according to any strict definition of the term. Instead, they are preferential agreements that favor the nations that sign over the others that aren’t involved. This puts certain countries at an advantage and others at a disadvantage. In other words, the playing field isn’t level–and leveling the playing field is a top goal for all true free-traders.
Here’s an example: China just inked a trade deal with the ASEAN–the Association of Southeast Asian Nations, a group that includes Indonesia, the Philippines, Singapore, Thailand, and Vietnam. It means that Chinese exports to these countries now will benefit from lowered trade barriers that remain in place for American products. In other words, Chinese goods are favored over American ones.
Americans, of course, play the same game. We have our own bilateral accord with Singapore. And our North American Free Trade Agreement–to be joined soon, I hope, by the Central American Free Trade Agreement–certainly doesn’t do anything to help China.
With global trade talks proceeding sluggishly, the nations of the world have sensibly moved forward with a series of bilateral and regional trade pacts. There were only about 50 of these in existence in 1990, according to the World Bank, but today there are nearly 230 and another 60 or so are in the works. The United States is party to about a dozen of those already in existence and a dozen more currently await final approval.
My own view is that whenever a tariff is lowered somewhere in the world, it’s a victory over protectionism–a small one perhaps, but a victory nonetheless. The Bush administration likes to refer to bilateral and regional trade deals as “competitive liberalization.” That’s a fine phrase, because its overall effect is to reduce the artificial barriers imposed on trade by governments.
We should continue to push hard for unilateral trade reforms as well as global free trade through the World Trade Organization because that’s where the biggest gains will be made. According to the World Bank, two-thirds of the tariff reductions since 1983 were the result of individual countries deciding to lower them on their own. (These are best understood as tax cuts meant to help the domestic population.) Another 25 percent were the result of the Uruguay trade round. Only about 10 percent sprang from bilateral and regional deals.
At the same time, we shouldn’t let the perfect become the enemy of the good. An important weakness of massive multilateral talks is that a handful of countries can send discussions off track. We saw this happen last year in Cancun, when a coalition of developing nations essentially halted the WTO’s progress.
There have been some advances since then, and we’ll eventually complete the current round of negotiations. In the meantime, however, it makes sense for countries–including the United States–to strike their own deals. And eliminating some barriers now should ultimately make it easier to get rid of more of them later. The threat of being left out of bilateral and regional trade deals may even encourage some problematic countries to return to the global bargaining table.
The real enemies are the small number of people who don’t want any free trade at all. They’re the real mediocrities.