Free Trade and other Grimm Fairy tales

[Gunnar]

Aren't we all one big global family anyway?

ya know...I'm getting the distinct impression there is sarcasm involved in this posting. ;D

Still, if he drops all trade barriers, I'm all for it.  It's unlikely you'll get the rest of the world to agree, but studies and time have shown that free trade really benefits the country who trades freely, i.e., the country with the fewest barriers to trade.

I'd love to see us do that too, but Paul Martin and I don't go golfing nearly as much as we used to. 

 

[a_majoor]

If we use the same bilateral FTA agreement for each party we want to invite into the "Free Trade Bloc", and choose nations with strong traditions of rule of law, property rights etc., then many of the objections against a series of bilateral FTAs will be overcome.

As well, the main bargaining chips we have are the ability to drop protective tarrifs against the particular county, and access to a market of 30 million fairly wealthy (by global standards) people. We have little to loose and everything to gain. Carpe Diem people!

 

[Zio]

I can hear the bells of Imperial Preference ringing!  "Free Trade" blocs as a catalyst for commercial/regional integration!  Although the world economic picture may be vastly different than in 1932, the ramifications of the Ottawa system lasted well into the latter half of the century.  Let's not allow this clever (and domestically popular) deceiver to rear up again!  Since the Canadian economy relies so heavily on the U.S (upwards of 2 Billion a day, as opposed to export with Russia at 40+ Million a year) some of my points are aimed more at the United States than us.

1. The designation of regional Free Trade blocs creates a system of trade discrimination with the rest of the world.  They, and us need access to the American economy, the difference being we receive preferential treatment under NAFTA.  60 years ago the U.S needed access to the commonwealth market and was hampered by the Ottawa system.  Back then the U.S railed against this, citing global free trade as their goal and looking for any means to end it. (Art.7 Lend-Lease, GATT negotiations etc.)  It is ironic that one of the largest purveyors of regional trade agreements now is the U.S.

2. Canada, the U.S and other countries cite the provisions within the WTO governing Regional Trade Agreements, claiming sanctioned RTAs actually help promote the global trade agenda.  Accordingly at the WTO these RTAs will be scrutinized for WTO compliance.  Unfortunately there has not been a consensus on a RTA examination (the report that is submitted to the WTO for implementation) since 1995!  We can sit back quite nicely and point to the fact that the CRTA has been notified of all our agreements, secure in the knowledge an examination report will never be acted upon. 

3. I will state again that negotiated global free trade agreements are the best course to follow.  I will also allow that it is too late to turn the clock back, so what we can do is mitigate their impact; get the FTAA talks back up and running (larger regionalism in my opinion being the lesser evil), concentrate on WTO talks with a global mindset. 

The point about similar FTAs is probably not workable.  Bilateral or even regional agreements by their very nature are unique.  By nature I include the political aspect such as labor concessions, human rights etc, and trade concessions such as point of origin and industrial vs. agriculture concessions.  For example an agreement for the U.S to drop cotton subsidies reciprocally with a much smaller country (I am not defending the mockery that those subsidies are!) leading to a miniscule impact on their economy is not the quid pro quo that would lead to successful agreements.  Thus the need for tailored FTAs to suit economic as well as political agendas, not only U.S but also the E.U and ours as well, will remain.

 

[Edward Campbell]

Okay Edward Campbell your position as I understand it, is that Canada should pursue bilateral FTAs with specific countries.  Let me be clear about one thing, I fully support the elimination of tariff and other trade impediments, what I disagree with you on is the manner that it should and is being done ...

Hmmmm ... but:

...

Steady tariff reduction â “ preferably reciprocally â “ is the best solution.  The WTO is the best mechanism, but unilateral tariff reduction is good enough if that is all that is available.  Doing nothing â “ which is the policy of the government of the day in Canada â “ is not an acceptable choice ...

We can and should be bold ... and try to start a small fire in the protectionist forest by cutting tariffs on goods from countries which might respond in kind; then reducing more tariffs and cutting tariffs with other countries ...

We do need to negotiate, with great care, on some issues: movement and protection of capital, foreign ownership rules, national security exemptions and, above all, free movement of workers and their immediate families ...

The WTO is the best mechanism but it is a painfully slow mechanism because the place if chock-a-block full of protectionists â “ especially the continental Europeans and the Americans (who are the worst and 2nd worst of the lot) - who are trying to throw spanners into the works.  The WTO works for trade in goods and most (many? some?) services but it is 100% unable to deal with the free flow of people and capital and with legal reciprocity â “ hence we need a string of bilateral agreements, too.
 
Understand my position now?

 

[Zio]

Yes, the WTO is the preferred body to negotiate global trade liberalization that much we agree on.  The dogged approach of continuing to sign regional trade agreements is where we continue to disagree. 

There are very strong arguments in favor of these practices including many that I agree with.  Not the least of which being that these agreements have a proven track record when it comes to industrial duty reduction.  That being said I cannot help but reiterate that continuing down this path is not the correct course of action.

1. In 1995 the U.S had preferential trade agreements with only 3 nations: us, Mexico and Israel.  They currently (I believe) are at 25 in effect or pending, having just concluded another a short time ago.  As you pointed out the E.U are worse offenders trading with only 10 nations on a MFN basis.  Worldwide presently there are some 150 of these agreements, perhaps even more if we take into account practices operating because of less formalized agreements.  They represent the largest hindrance to global free trade, for reasons I mentioned earlier.  Again we agree that the most desired end state is zero tariff trade (we split on the process, its all about the process!)

2. The knock I have against these types of deals is not that they do not work between the partners; rather they set up barriers to non-discriminatory trading with others in the world.  As I said earlier the damage has been done, we (the world) are now stuck with a mixed bag of FTAs and other preferential trade agreements.  In order to salvage and progress further towards our goal we should place a moratorium on new FTAs, develop larger regional agreements that set timetables to hit zero duties.  Take these agreements and use them then as a bridge to talks brining the global duty rates to zero.  Unfortunately the hemispheric deal Canada is negotiating on doesn't even include this in the framework which is why I use the term should not will.  And yes, although it may be too late and the competition between the E.U and U.S to rush into RTAs may have produced long lasting effects I still believe that these type of hemispheric deals minus zero duty provisions are just more roadblocks.

3.  Your proposed unilateral tariff reduction on our part poses a trickier question.  First off in my opinion unilateral duty reduction on our part would still require agreed upon and stringent point of origin provisions.  Why wade into that arena which right now is a major sticking point in FTAA talks?  Comprehensive global trade liberalization eliminates this contentious issue.  Projecting our exports into protected markets in my opinion will limit our potential trade expansion as compared to expansion under any sort of FTA.  As well we will see our negotiating power in terms of trade reduced for no significant payoff.  I agree that a hypothetically reciprocal reduction by the other nation (I am not aware of any non-agreement cases at all) would produce the outcome you advocate for.  Again it is my belief only that once we have lost the "stick" in our trade talks this result is not a plausible one.  I say look at these hypothetical bonuses and instead use them as arguments for worldwide duty reduction during global talks.

 

[Edward Campbell]

I agree with your 2nd point: that is exactly what most negotiated trade agreements do â “ raise even more protectionist barriers.

But: the WTO, which is better than the GATT and infinitely better than most UN agencies, is already, stagnating â “ largely because it has about 500% too many members.  We need to start real free trade with about 30 countries â “ essentially the OECD plus India and China.  There is no useful reason to have Angola, Bangladesh, Cameroon, Djibouti and all, down to Zimbabwe in the WTO; they have nothing to offer and no reason to be involved until the top 20+ have settled 65% of the world's trade.

That takes me to unilateral reductions in tariffs â “ they work.  That is their only advantage: they work while nothing else does.  They do need to be backed-up with bilateral agreement, as I said, re: the movement of workers and legal protections.

The problem with unilateral tariff reduction, for Canada, is simple: an incompetent and cowardly government â “ at both the political and bureaucratic levels.