Truly Global Free Trade
Co-written by research associate Alex McHugh
As the U.S. and several Asian Pacific nations resume discussion this week over the the Trans-Pacific Partnership (TPP), it is noticeable that in this and the other main trade deal in the offing — the Transatlantic Trade and Investment Partnership (TTIP) — the word “free” has gone missing. America used to unashamedly promote its fondness for free trade, as in the North American Free Trade Agreement (NAFTA), but now the buzzword is “partnership,” and the agreements are ring-fenced with exemptions and regulations. Yet it is free trade that gives the most benefit to all concerned. Perhaps our negotiators should step back from regional partnerships and go for a global free-trade agreement instead.
One argument raised against free-trade agreements is that for every reduction of barriers between signatories, a new barrier is raised for non-signatories. Many have already pointed out that TTIP is not a panacea. Although the world overall would gain in trade, countries such as Turkey and Canada could see reduced trade when the relative cost of trading with them increased.
Some would claim that the only answer is to forgo free trade completely: If everyone doesn’t gain, it’s not a fair deal. This argument blames U.S. policy for lost trade when the true culprit is the losing country’s own — now relatively more stringent — trade policies. But it’s right to point out that while reduced barriers in the Atlantic or Pacific provide an incentive for worldwide reduction of barriers, they don’t necessarily provide the means for achieving that goal.
Part of the problem is that America has become addicted to bilateral deals. When the best option for mutual gain is protracted and involved negotiations, it’s easy to see why some won’t take steps forward. They are even willing to risk infringement on sovereignty, as when the deal focuses more on harmonizing existing barriers than on removing them. This has been the norm lately, with particular attention being paid to harmonizing environmental and labor barriers to free trade.
Fortunately, there is an easier route to global economic freedom than dozens of bilateral treaties, and the route is available to far more countries. Rather than tacking on side agreements that give up on free trade, we should take a whole new approach to global-trade freedom.
The Global Free Trade Alliance (GFTA) was first proposed in 2001 by the visionary John Hulsman, then at the Heritage Foundation. Hulsman proposed that the U.S. simply invite all countries willing to join a free-trade alliance, rather than pursuing small gains one partner at a time. With just one piece of legislation, barrier-free access to U.S. markets could be offered to any country willing to lower its own barriers below a certain threshold.
Membership would depend on an overall measure of trade-friendliness instead of on targeted policy changes. That way, benefits wouldn’t be limited to well-connected industries and pet issues but would be felt throughout the entire economy. A cost-free economic stimulus, in other words.
The biggest beneficiaries of such a system would be U.S. citizens. We would see easier access to all corners of the globe, instead of one market at a time being opened up through slow-moving trade negotiations.
TTIP would be great for U.S. food producers. However, for those small-business owners looking for easier access to booming Brazilian markets or for consumers who’d love to see cheaper clothes on the racks, a tunnel-vision deal such as TTIP is a waste of time.
A GFTA would be a real game changer. Today, if the same requirements as those in the Hulsman study were used, as many as 24 nations would meet the standards of overall trade-friendliness and, with a revised methodology, as many as 33 — including even some African nations. Since 2004, the U.S. has signed only eleven bilateral free-trade agreements. Globally, more than twice as many people would be enjoying the benefits of freer trade today if we had taken up Hulsman’s proposal a decade ago.
Regional agreements like TTIP and the Trans-Pacific Partnership, while an improvement on bilateralism, still aim too low. It’s well recognized that a broader approach means larger gains faster. The United States could lead a revolution in trade freedom if we were to both think and act globally.