US Free Trade Research Articles

The economic impact of the Australia–US free trade agreement

The Australia–United States Free Trade Agreement (AUSFTA) came into effect in 2005. It was the second preferential trade agreement that Australia signed, after its agreement with Singapore, and marked a departure from the primacy of Australia's previous trade policy of unilateral and multilateral trade liberalisation toward preferential liberalisation. This paper assesses the economic effects of AUSFTA by applying the Productivity Commission's gravity model of trade from its Bilateral and Regional Trade Agreements review. The evidence reveals AUSFTA resulted in a fall in Australian and US trade with the rest of the world—that the agreement led to trade diversion. Estimates also show that AUSFTA is associated with a reduction in trade between Australia and the United States.

Tariffs, Trade and Productivity: A Quantitative Evaluation of Heterogeneous Firm Models

We examine the quantitative predictions of heterogeneous firm in the context of the Canada–US Free Trade Agreement (CUSFTA) of 1989. We compute predicted increases in trade flows and measured productivity and compare them to the post‐CUSFTA increases observed in the data. Most models predict increases in measured productivity that are too low by an order of magnitude relative to predicted increases in trade flows. A multi‐product firm extension that allows for within‐firm productivity increases has the potential to reconcile model predictions with the data.

Regulating Services Through Trade Agreements - A Comparative Analysis of Regulatory Disciplines Included in EU and US Free Trade Agreements

Developed countries, led by the EU and the US, have consistently called for ‘deeper integration’ over the course of the past three decades i.e., the convergence of ‘behind-the-border’ or domestic polices and rules such as services, competition, public procurement, intellectual property (IP) and so forth. Following the collapse of the Doha Development Round, the EU and the US have pursued this push for deeper integration by entering into deep and comprehensive free trade agreements (DFTAs) that are comprehensive insofar as they are not limited to tariffs but extend to regulatory trade barriers. More recently, the EU and the US launched negotiations on a Transatlantic Trade and Investment Partnership (TTIP) and a Trade in Services Agreement (TISA), which put tackling barriers resulting from divergences in domestic regulation in the area of services at the very top of the agenda. Should these agreements come to pass, they may well set the template for the rules of international trade and define the core features of domestic services market regulation. This article examines the regulatory disciplines in the area of services included in existing EU and US DCFTAs from a comparative perspective in order to delineate possible similarities and divergences and assess the extent to which these DCFTAs can shed some light into the possible outcome and limitations of future trade negotiations in services. It also discusses the potential impact of such negotiations on developing countries and, more generally, on the multilateral process.

Security ties or electoral connections? The US Congress and the Korea-US Free Trade Agreement, 2007-2011

Conventional wisdom is that trade policy is often guided by geopolitical security considerations. A growing body of research addresses the security–trade linkage as a plausible cause for executive negotiations over the Korea–US Free Trade Agreement (KORUS FTA) in 2007. Yet, the approval of a trade deal with the Asian ally by America’s legislature in 2011 features not only ‘security ties’ but also ‘electoral connections’. This paper seeks to examine the question of whether alliance relationships would inevitably translate into domestic commitments. Bringing domestic politics into consideration, this article also fills the gap in the literature on Congress-focused research of the KORUS FTA and sheds light on how lawmakers strike a balance between the principle of US foreign policy and the reality of conflicting domestic interests.

Trade and Global Income Inequality with Frictional Labor Markets: A Lesson from the Canada–US Free Trade Agreement

This paper develops a two-country trade model with frictional labor market structures to investigate the link between increased openness to trade and cross-country income inequality. Calibrated to US–Canadian data, the model simulation results show that the Canada–US Free Trade Agreement benefited Canada, the country with relatively higher capital intensity, more due to its capacity to flexibly expand in response to an increase in product demand. The results from counterfactual experiments indicate that increased capital intensity in the US is expected to increase gains from trade in both countries while making the distribution of gains less unequal.

Were the original Canada–US Free Trade Agreement (CUSFTA) and the North American Free Trade Agreement (NAFTA) significant policy turning points? Understanding the evolution of macroeconomic policy from the pre- to the post-NAFTA era in North America

This article reviewsthe Keynesian/heterodox critique of free trade and the principle of comparative advantage, and offers some prima facie empirical evidence for North America that contradicts the basic predictions of the traditional free trade model. The evidence supports, instead, the view that trade liberalization actually promoted a perverse neo-mercantilist export-led growth (ELG) strategy that generates deflationary pressures not so much because NAFTA promoted greater international competition, but primarily because ELG relied on the macroeconomic role of the state in its implementing of restrictive fiscal and monetary policies to keep a lid on wage growth. The article argues that there is need for an alternative NAFTA that should promote the free circulation of goods, and that an institutional structure should be put in place that firmly ties each national government to an explicit full-employment commitment.

The Macroeconomic Effects of the Canada–US Free Trade Agreement on Canada: A Counterfactual Analysis

AbstractWe evaluate the macroeconomic effects of the Canada–US Free Trade Agreement (FTA) on Canada's economy using a counterfactual analysis. We exploit the dependence of GDP growth (labour productivity and unemployment, respectively) among different economic entities and construct the counterfactuals using data from countries other than Canada. We find that in the adjustment period from 1989:Q1 to 1992:Q1, Canada's economy bore the short‐run adjustment costs of the FTA with a decline of the annual real GDP by 2.56 per cent and a decline of the labour productivity by 0.62 per cent. After the adjustment period, the FTA had a positive and permanent effect of 1.86 per cent on Canada's annual real GDP growth and raised the labour productivity from 1992 to 1994 by 2.39 per cent on average. Moreover, the FTA increased Canada's annual unemployment rate by 1.81 per cent in the period 1989–94.

Morocco and the US Free Trade Agreement: A specific factors model with unemployment and energy imports

This paper examines the impact in Morocco of its pending free trade agreement with the US in a specific factors model with unemployment and energy imports. Projected price scenarios across eight industries lead to adjustments in outputs, energy imports, rural wages, urban wages, and the unemployment rate. The model predicts substantial adjustments for reasonable price scenarios. Rural wages fall unless agriculture is subsidized. Unemployment, assumed inversely related to output, is sensitive to price changes. Factor substitution only affects the degree of output adjustments. Adjustments in capital returns lead to industrial investment and subsequent long run output adjustments.

Federalism and the governance of international trade negotiations in Canada: Comparing CUSFTA with CETA

When the European Union (EU) and the Canadian government announced the launching of negotiations to create a “new generation” free trade agreement, the EU insisted that provincial representatives be included on the Canadian negotiating team. The goal of this article is to explain why the provinces have gradually become key, indeed indispensable, actors in international trade negotiations. I examine how international trade negotiations are conducted in Canada, noting the enhanced role for provincial governments, and I focus on a comparison between the Canada–US free trade negotiations and the discussions for a Comprehensive Economic and Trade Agreement (CETA) with Europe.

TPP Australian Section-by-Section Analysis of the Enforcement Provisions

This paper analyses the leaked 30 August 2013 text of the TPP IP Chapter from an Australian perspective, focusing on the enforcement provisions only. The goal is to assess the compatibility of provisions in the current draft with Australian law and Australia’s international obligations: including TRIPS and the Australia-US Free Trade Agreement (AUSFTA). The review has several key purposes: 1. To contribute careful analysis to the current debate on the TPPA IP proposals; 2. To offer input into the Australian processes considering the TPPA; 3. To demonstrate to an international audience the relationship between these provisions and TRIPS; and 4. To demonstrate the relationship between these provisions and existing US Free Trade Agreements like AUSFTA. A surprising number of the provisions go beyond AUSFTA.Reading the IP provisions of the TPP IP chapter leak dated August 2013 is a maddening, dispiriting process. The provisions are written like legislation, not treaty, suggesting a complete lack of good faith and trust on the part of the negotiating countries. There are subtle tweaks of language, the phrases included or not included from previous treaties; the subtle re-wordings that might give a treaty provision an entirely different meaning. Working out the scope of a country’s obligations if even half of this text becomes treaty is going to be extremely difficult. A range of big picture questions arise as to the relationship between any TPP IP chapter and other obligations to which countries may be subject, and I’m not at all convinced we know the answers. On a substantive level, much about the language of these provisions has changed since the US proposals dated February 2011. Some more extreme elements of the US proposals have been removed or watered down; some safeguards or qualifications have been inserted that preserve domestic flexibility or require consideration of user interests or civil liberties and fair process. Despite this, the chapter is still radically unbalanced. There are still far too few safeguards for defendants and third parties in the context of IP litigation. And there are many specific proposals with potentially negative impacts on the litigation process and on the balance of IP law.

Preferences, rent destruction and multilateral liberalization: The building block effect of CUSFTA

If a free trade agreement (FTA) is characterized by the exchange of market access with a large and competitive trading partner, the agreement can cause a leakage of protectionist benefits to domestic industry from lobbying against external tariff cuts. This rent destruction effect of an FTA can free policy makers to be more aggressive in multilateral tariff cuts. We argue that the Canadian–US free trade agreement (CUSFTA) provides an ideal policy experiment to link this mechanism to the data. Exploring the determinants of Canada's tariff cuts at the 8-digit HS product level, we find that CUSFTA acted as an additional driver of Canadian multilateral tariff reductions during the Uruguay Round.

A note on Canadian migration to the United States during the 1980s and 1990s

Considerable media attention had been directed towards the flow of highly talented Canadians to the United States in the 1990s. There are firm theoretical reasons, however, to believe that qualitative differences in migration began as early as the 1980s, owing to the widening distribution of earnings and the related increased returns to education in the United States relative to Canada, both of which could result in qualitative improvements in the migration flow. US immigration policy remained essentially unchanged during the 1980s, but changed markedly in the 1990s owing to the implementation of the Canada–US Free Trade Agreement (CUFTA) and its successor, the North American Free Trade Agreement (NAFTA). We use a flexible empirical approach to document these changes in immigrant quality using 1980, 1990 and 2000 US census data. Our results suggest that improvements in Canadian immigrant quality occurred during the 1990s, but these also happened earlier, casting doubt on the hypothesis of improving Canadian immigrant quality in the 1990s. Quantile regressions also show that improvement in the entry quality of immigrants was not limited to the upper tail of the earnings distribution.

Labor Provisions in US Free Trade Agreements: Determinants and Adequacy

The inclusion of labor-related provisions in US Free Trade Agreements has been a contentious issue. They have been attacked both for allegedly weakening the comparative advantage of developing and emerging countries; and for being too weak and inconsistent with the recommendations of the International Labour Organization (ILO). This paper proposes a method of assessing the reality of labor rights protection in U.S. FTAs Partner countries and gives a more precise picture of the adequacy of Labor-related provisions in those FTAs given the situation of labor rights protection in U.S FTAs Partner-countries. In doing so, it provides also a careful and original methodology to evaluate the respect of ILO Conventions and build an Index of Labour Bargaining Power, both of these constructions can be reproduced in further research and used to monitor the evolution of Labour Rights in any given country.

Tariffs, Trade and Productivity: A Quantitative Evaluation of Heterogeneous Firm Models

We examine the quantitative predictions of heterogeneous firm models a la Melitz (2003) in the context of the Canada - US Free Trade Agreement (CUSFTA) of 1989. We compute predicted increases in trade flows and measured productivity across a range of standard models and compare them to the post-CUSFTA increases observed in the data. Our results point to a fundamental problem which most models we analyse face: predicted increases in measured productivity are too low by an order of magnitude relative to predicted increases in trade flows. Thus, most models are inherently incapable of simultaneously matching trade and productivity reactions to freer trade, raising doubts about the accuracy of the quantitative predictions of a large number of work-horse models in the literature. Using a multi-product firm extension of our baseline model as an example, we show that allowing for within-firm productivity increases has the potential to reconcile model predictions with the data.

Measuring the welfare effects of intellectual property rights changes on the Korean pharmaceutical industry: the case of Korea–US Free Trade Agreement

This paper shows how to measure the welfare effects of intellectual property rights (IPR) changes under the Korea–US Free Trade Agreement (FTA) on the Korean economy. After the FTA, patent lifetimes are expected to be extended. During such extension periods, Korean generic drug makers will not be able to sell their drugs, and consumers will have to pay more because of higher prices. The new concepts of effective patent term and price-change mechanism were employed, and patent data for the Korean pharmaceutical industry were used to estimate the parameters needed to measure the welfare effects. The empirical results indicate that the welfare effect will be much smaller than suggested by previous studies. These methods to evaluate the welfare effects can be applied to the cases of other recent FTAs and other kinds of IPR negotiations in international economics.

Foreign Direct Investment in Australia Following the Australia–US Free Trade Agreement

AbstractA model of inward foreign direct investment for Australia is estimated. Foreign direct investment is found to be positively related to economic and productivity growth and negatively related to foreign portfolio investment, trade openness, the exchange rate and the foreign real interest rate. Foreign direct investment is found to be a substitute for both portfolio investment and trade in goods and services. The exchange rate and the US bond rate affect foreign direct investment through the relative attractiveness of domestic assets. Actual foreign direct investment outperforms a model‐derived forecast in recent years, consistent with the liberalisation of foreign investment screening rules following the Australia–US Free Trade Agreement.

The Scope and Limits of a Public–Private Hybrid: Dispute Settlement under NAFTA Chapter 19

Globalisation is often depicted as having led to an increase in private authority at the expense of that of the state. It is important to correctly specify the scope that private authority has achieved and the capacity of states to push back and limit that authority. This article grounds these theoretical issues in a discussion of the hybrid, public–private dispute settlement mechanism set up in the original Canada–US Free Trade Agreement (CUSTFA), and later extended into Chapter 19 of the North American Free Trade Agreement (NAFTA). It finds that privatising the enforcement process did make a difference. Trade experts on panels saw things differently to judges and in ways that were more sympathetic to exporters. This favoured Canadian and Mexican interests. However, the arrangement lacked deep roots. It was a late-stage compromise in trade negotiations. This rendered it vulnerable to a US counterattack once panels began to rule in favour of Canadian and Mexican challenges to US trade determinations. The transfer of quasi-judicial authority to a public–private hybrid proved contingent, partly on the hegemonic state's ongoing level of comfort with the arrangement, as well as on a lack of business consensus within the United States.

Wine industry developments in the Pacific Northwest: a comparative analysis of British Columbia, Washington State, and Oregon

The grape and wine industries in the Pacific Northwest have evolved in quite different ways. The expansion of the wine industry in British Columbia has been driven by increased competition resulting from the enactment of the Canada–US Free Trade Agreement in the late 1980s. In contrast, the grape and wine industries of Washington State and Oregon have expanded in response to global market trends in consumers changing life styles and wine preferences. In this paper, we explore the changing production and export trends of the Pacific Northwest wine industries over the last decade and analyze how these trends have been influenced by government regulations, business organizations, and export promotion programs.

Foreign trade zones in the United States

PurposeIn 2008, a bill was introduced in the 110th Congress (HR6415) to address the “unintended consequences” of US free trade agreements (US FTA) on manufacturers operating in US foreign trade zones (FTZs). Presently, US manufacturers operating in FTZs that use imported components pay a tariff (on finished goods entering the US market), which is not paid by their competitors in countries that have free trade agreements (FTAs) with the USA. The purpose of this paper is to explore the implications of a legislative proposal to address this issue (the bill is still under consideration and not yet been passed by Congress) for domestic firms and the overall economy.Design/methodology/approachThe paper is largely based on the analysis of the legislative proposal (HR6415), and US trade data obtained from the United Nations.FindingsThe paper shows that the trade agreement parity (TAP) proposal may have the undesirable effect of encouraging local firms (in US FTZs) to use foreign components and increasing the trade deficit. It also shows that the proposal, by facilitating the entry of more foreign imports undermines the original purpose for which FTZs were designed.Originality/valueThere are no papers examining the implications of this Congressional bill on domestic competition and the overall US economy. This paper and its recommendations will help US policymakers to re‐evaluate the existing proposal and also revisit the role of FTZs in the US economy.

Trade and globalization: an introduction to regional trade agreements

Chapter 1: Introduction to Regional Trade Agreements: Making Sense of the RTA Spaghetti Bowl Chapter 2: Africa Chapter 3: The Americas Chapter 4: Asia Chapter 5: Europe Chapter 6: Russia and the Former Soviet Republics Chapter 7: The Middle East and North Africa Chapter 8: The Pacific Islands Chapter 9: Conclusion Appendix A: The World Trade Organization Appendix B: European Union Preferential Access Agreements Appendix C: US Free Trade Agreements and Pending Free Trade Agreements List of Abbreviations Glossary Bibliography