Old Wine in New Bottles: Are Free Trade Agreements the New Protectionism?

Abstract

Normal 0 false false false MicrosoftInternetExplorer4 Free trade agreements have proliferated wildly in the past five years. This paper tries to make sense of this alternative approach to trade policy by carefully distinguishing free trade from free trade agreements. The motivation for the first approach is largely economic, while politics is the key driver behind the latter. In particular, large economies find it simpler to impose their objectives on smaller economies than in the multilateral environment of free trade. In particular, the allure of access to large markets can bind small countries to their larger counterparts in an interplay of political and economic ties. The leverage provided by such agreements affects the foreign policy decisions of these smaller economies and tends to draw them into conformity with that of its larger partner. In much the same way, such agreements allow large economies to foist standards involving intellectual property rights, quarantine inspection, or business practises that advance prominent vested interests within the large nation. While no single small country is significant, each agreement signed creates a precedent for the next. In aggregate, this creates de facto universal standards that are far more conducive to national interests than could be expected in multilateral negotiations. To make these points clear, I examine the recent Australia/US Free Trade Agreement. This treaty, in its way, represents some of the gravest shortcomings of this preferential approach to trade policy. By evaluating this agreement using checkpoints provided by a proponent of free trade agreements (Summers), as well as a list suggested by an academic opponent (Bhagwati), I am able to demonstrate how economics took a clear back seat in negotiating such a treaty. Given that both China and Japan, as well as the US, are now eagerly pursuing such arrangements in the Asia Pacific region as well as elsewhere, this study may provide policy guidelines to future negotiations for free trade agreements.