Restoring Trust in Free Trade Bashar H. Malkawi
Free trade agreements (FTAs) are contractual obligations between the parties to reduce or eliminate tariffs on imports and reduce/eliminate trade restrictions in a wide array of economic sectors and services.1 The goals of FTAs are to promote crossborder trade and investment and provide a stimulus to the economy of the trade partners. FTAs arise from perceptions between trading partners that an FTA would benefit the partners by – at a minimum – reducing or eliminating trade barriers and tariffs and establishing rules with respect to what constitutes a product manufactured within the FTA (rules of origin).2 There are many benefits ascribed to FTAs such as vigorous global trade and encouraging efficient allocation of resources, enhanced consumer options and overall lower economic costs. FTAs are cited as encouraging trade liberalization and access to markets creating a more dynamic economic environment. Indeed, expert economic consensus is that free trade fosters economic gains and raises living standards. Moreover, in addition to economic benefits, free trade agreements have been viewed favorably as a tool of broad strategic goals. 3 The signing of FTAs not only signifies economic cooperation between nations, but also cooperation on the political and institutional fronts. In recent years, a large amount of criticism has been leveled against free trade and in particular FTAs such as NAFTA based on purported unequal benefits. NAFTA has been singled out by FTA critics as a" bad deal” that needs to be re-negotiated. While critics have claimed Mexico has benefited to a greater extent, “the Mexican economy is less than one-tenth the size of the U.S. economy, it is not plausible that trade integration could dramatically shape the giant U.S. economy, even though integration could exert a substantial impact on the relatively small Mexican economy.” 4 Moreover, a substantial part of the critique may be attributable to the high expectations. President Bill Clinton claimed that NAFTA would create 200,000 U.S. jobs within two years and over a million jobs within five years.5 Yet the expert
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See, e.g., Korea FTA chs. 3, 7, 11, 12, and 18, 46 I.L.M. 642 (2007). William H. Cooper, Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy Specialist in International Trade and Finance (2014) https://fas.org/sgp/crs/row/RL31356.pdf page 2. 2
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Interestingly, the U.S. had arrived “relatively late to the conclusion that regional trade agreements were a desirable and even necessary element of a comprehensive trade liberalization policy. Throughout multiple GATT negotiating “rounds” designed to achieve global tariff and non-tariff barrier reductions, at least through the Tokyo Round (1973-79), the United States remained a strong supporter of the multilateral trading system. The shift toward Regional Trade Agreements (RTAs) began only in the mid-1980s.” See David A. Gantz Introduction to U.S. Free Trade Agreements (2016). 4
See Gary Cl yde Hufbauer, Cathleen Cimino, and Tyler Moran, NAFTA at 20: Misleading Charges and Positive Achievements 3 (2014). 5 Id.
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consensus is that the U.S. benefited substantially from NAFTA despite the possibility that Mexico benefited to a larger extent.6 Another avenue of criticism is that FTAs may adversely impact human rights and or cause labor abuses.7 Indeed, investment and free trade agreements have been critiqued because states have been penalized for adopting regulations, for example to protect the environment, food security. FTAs have been urged not to stomp on human rights and that should an investment agreement include an investment chapter, that arbitrators must be so drafted that interference in the domestic regulation of budgetary, fiscal, health and environmental and other public policies are not allowed. The US-Jordan FTA is noteworthy as it was the first to include environmental, labor and e-commerce issues8 although less comprehensive overall than the prior NAFTA and subsequent FTAs.9 Reflecting these concerns over globalization and free trade, voter perception of unfair trade have reached a critical mass in the U.S. and other nations as evidenced by the election of President Donald Trump and UK Prime Minister Theresa May. The U.S. is seeking to revamp its trade practices10 and update existing FTAs to reflect alleged unfairness, inefficiencies and incorporate new legal developments.11
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Id.
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See http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=16031 (“There is a legitimate concern that both bilateral and multilateral investment treaties might aggravate the problem of extreme poverty, jeopardize fair and efficient foreign debt renegotiation, and affect the rights of indigenous peoples, minorities, persons with disabilities, older persons, and other persons leaving in vulnerable situations.” 8 Agreement Between the United States of America and the Hashemite Kingdom of Jordan on the Establishment of a Free Trade Area, Oct. 24, 2000, available at https://ustr.gov/trade-agreements/freetrade-agreements/jordan-fta/final-text. See Articles. 5-7. 9 See David A. Gantz Introduction to U.S. Free Trade Agreements, https://www.degruyter.com/view/j/bjals.2016.5.issue-2/bjals-2016-0010/bjals-2016-0010.xml (2016 (“The JFTA consists of a preamble, nineteen articles, three annexes and a variety of joint statements, memoranda of understanding and various side letters. By comparison with NAFTA, and with subsequent U.S. FTAs such as those with Chile, Singapore and CAFTA-DR, the JFTA is a compact package.”) 10
The UK will likely do so as well. See Randall Mark Wigle, A quick UK-US post-Brexit trade deal? Looking at Nafta, that seems unlikely https://www.theguardian.com/commentisfree/2017/nov/24/trump-quick-uk-us-post-brexit-trade-dealnafta Nov 24, 2017 “(The UK now needs to renegotiate trade arrangements (hundreds in total, according to the Financial Times) with all its trading partners, key among them the EU itself, which accounts for the majority of British trade.”) 11 See SOFIA LOTTO PERSIO TRUMP SCORES FIRST WIN ON ‘HORRIBLE’ SOUTH KOREA TRADE AGREEMENT HTTP://WWW.NEWSWEEK.COM/TRUMP-SCORES-FIRST-WINHORRIBLE-SOUTH-KOREA-TRADE-AGREEMENT-678892 (“South Korea has agreed to President Donald Trump’s request to renegotiate a five-year-old trade agreement establishing a free trade area (FTA) between the two countries”); Ana Swanson, https://www.washingtonpost.com/news/wonk/wp/2017/07/17/trump-administration-outlines-goals-fornafta-rewrite/?utm_term=.5bbf0936e029 July 17, 2017 (“The Trump administration unveiled its goals for renegotiating the North American Free Trade Agreement, issuing a broad plan for how it hopes to rewrite the terms of trade and transform the U.S. economy for decades to come.)
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At a time when there are inward-looking trade policies adopted by the U.S. and attack on trade and globalization generally, it is good to remember that trade is critical to America's prosperity - fueling economic growth, supporting good jobs at home, raising living standards and helping Americans provide for their families with affordable goods and services. Trade keeps the U.S. economy open, dynamic, and competitive, and helps ensure that America continues to be the best place in the world to do business. 12 In an intensively competitive globalized economic context, countries with more open trade and foreign investment regimes will outclass those countries which have restrictive trade and foreign direct investment policies. Protectionist measures are not conducive to economic growth. Indeed, embracement of FTAs may be viewed as a “defense� against trade rivals entering into FTAs.
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N. GREGORY MANKIW, Economists Actually Agree on This: The Wisdom of Free Trade, available at <https://www.nytimes.com/2015/04/26/upshot/economists-actually-agree-on-this-pointthe-wisdom-of-free-trade.html> (trade is nearly unanimously recognized as beneficial).
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