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Politics & Policy

Are ‘Free-Trade Agreements’ No Longer about Free and Open Trade?

If one believes that free trade is better than protectionism, then support for free-trade agreements might seem like a no-brainer. It isn’t so surprising, then, that when asked whether the North American Free Trade Agreement had been a good thing for U.S. citizens, Harvard’s Dani Rodrik points out in a new article, nearly all leading economists agreed that it had.

Yet the overall gains of NAFTA are disputed, and it isn’t clear that any boost to the U.S. economy was enough to offset the harm done to already vulnerable groups. Perhaps, posits Rodrik, the problem is that people don’t understand what trade agreements are. Indeed, it’s more accurate to call them preferential trade agreements, which grant preferential access to some countries over others in exchange for concessions. Countries are, after all, free to unilaterally open their markets to imported goods and services, with no agreement necessary. Although traditional trade agreements focused mostly on tariffs, quotas, and other real trade barriers, today’s arrangements are more likely to cover domestic rules and regulations — things like safety and environmental standards, intellectual-property rights, and banking and finance regulations.

In other words, free-trade agreements are no longer purely about open and efficient trade. What’s more, Rodrik concludes, they should no longer even be seen as efforts to fight import protectionists. Rather, they have become tools of interests on the export side — politically well-connected multinationals — looking to expand market access abroad. According to research by the Sunlight Foundation on the Trans-Pacific Partnership, pharmaceutical-manufacturing firms, auto manufacturers, dairy producers, and the like were among the most active in lobbying during the negotiations for that agreement. Groups more associated with traditional protectionist impulses, such as labor unions, lagged behind.

The effects of the resulting trade agreements will be somewhat ambiguous. “Trade agreements could still result in freer, mutually beneficial trade, through exchange of market access,” concludes Rodrik. “They could result in the global upgrading of regulations and standards, for labor, say, or the environment. But they could also produce purely redistributive outcomes under the guise of ‘freer trade.’”

There’s nothing intrinsically wrong with devoting more time and attention to some industries at the expense of others. The U.S., for example, has been particularly energetic in promoting the interests of multinational business enterprises that assign ownership of their most valuable intellectual property to subsidies domiciled in offshore tax havens while being less solicitous of the advanced manufacturing sector. Though I’d strongly prefer a different emphasis, there’s certainly a case to be made for this approach. But let’s not pretend it’s perfectly neutral.


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