The Corner

Free Trade

Rich’s trade guy writes in response to today’s column:

Jonah: In today’s NRO piece (which I agree with the main point of), you

write:

Free speech is a lot like free trade. It sounds simple in theory, but in

practice it gets awfully messy. For example, the North American Free

Trade Agreement, which is supposed to establish “free trade” between the

countries of North America, is – with all of its accompanying documents

– about the size of a good encyclopedia. The thing is, if it were a real

free trade treaty, it would take somewhere between a page and a

sentence. It would say “there shall be free trade between the U.S.,

Canada and Mexico.” Instead, it’s a Byzantine series of lawyerly

exceptions, caveats, codicils and loopholes. And yet, we call it a free

trade document.

This is what Ross Perot and populist radio hosts were saying during the

NAFTA debate. May I defend the “good-sized encyclopedia”?

(1) Three of the four volumes of the encyclopedia are the tariff

schedules of Canada, Mexico, and the United States in their original

languages (but because of Harmonized System numbers for products, you

only need to know English). These exist solely because we didn’t have

free trade on all products on the same day (1/1/94), but some were

phased in, and so they contain the staging tables.

(2) Generally, people understand “there shall be free trade between the

U.S., Canada and Mexico” to *not* mean “there shall also be duty-free

treatment for stuff from China, Japan, etc. etc. who aren’t part of this

deal as long as they drag it through a NAFTA member on the way to final

delivery and slap a “Made in Mexico” label on it.” This means you need

“rules of origin” to determine whether something is or isn’t a “NAFTA

product,” and given that stuff is made in little bits all around the

world, this gives lawyers a lot of work. You can conceal protectionism

in the rules of origin, but you can’t just do without them, and they

take up lots of pages.

(3) Generally, the U.S., Canada, and Mexico consider that they don’t

give up their own Constitutions and national sovereignty by signing such

a deal. E.g. they can still regulate for safety, environmental, and

public health reasons. But this leads to endless disputes of the “We’re

not taking this milk because it’s spoiled!” “No, you’re not taking it

because it’s American, and you’re letting it spoil at the border on

purpose!” sort. This means you need not only Dispute Resolution

provisions, but you need provisions on all kinds of arcane things like

Sanitary and Phytosanitary Standards that determine where National

Sovereignty stops and Free Trade starts. (BTW we have the same problem

in the U.S. Constitution, where Free Trade among the states is provided

by the Commerce Clause, States’ Rights under the 10th Amendment, and you

get case law about states inspecting fruit at the border, whether states

can ban imports of garbage into landfills, blah, blah).

(4) Free trade in what? Does it include only Goods? Or also Services?

And Investment? And Intellectual Property? Guess what, they also spin

out a whole bunch of issues just like (2) and (3), which if you were

*silent*, you would end up defining the agreement by a bunch of bad

legal battles ex post, whereas the three parties would rather define

what they were trying to do up front.

Hope this helps. If you use any part of this, I’m still “Rich’s Trade

Guy” or just “Trade Guy.”

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