About Those One Sentence Free Trade Agreements

I sometimes hear it said that today’s lengthy trade agreements are about “managed trade,” and that a true free trade agreement would only have to be one sentence (or perhaps one paragraph.) Well, maybe, but it depends on what that sentence or paragraph says. Here’s a suggestion someone made on a trade policy blog I run:

A true free trade agreement would be one sentence. Any good that can be sold legally in a country can be sold legally by a seller from any other country that is a party to this agreement. The agreements are long because they are negotiating winners and losers. That is crony capitalism.

The problem with this proposed sentence is that it would be under-inclusive: It would not achieve free trade, in several respects.

First, the primary barrier to free trade is still tariffs, which are taxes imposed on imports. Tariffs don’t make trade illegal, they just tax it, and a rule that goods which can legally be sold in a country can also be sold by foreign sellers would not eliminate tariffs. And, by the way, that’s a big reason why trade agreements are so long – they list all traded products and place limits on the tariff level for each product. Many of the pages are taken up by these detailed tariff reduction schedules.

Now, you could have a one sentence trade agreement that said something along the lines of, “All tariffs are hereby abolished.” That would be a pretty good sentence in a trade agreement. So far, we haven’t seen a sentence like that, unfortunately.

In addition, there are some complex protectionist measures out there, not all of which ban the sale of foreign goods.  For example, you could have a tax measure which applies higher taxes to foreign goods than domestic goods. This would mean that foreign goods could still legally be sold in the country, and thus the free trade sentence quoted above would not address such a measure.

Along the same lines, some trade agreements impose constraints on the use of anti-dumping measures.  There might be an ideal sentence here (“anti-dumping measures are hereby abolished”), but that is not politically achievable right now, so we end up with many pages of rules that put limits on anti-dumping measures. It’s not perfect, but it helps.

To sum up, I agree with critics who say there are lots of problems with today’s trade agreements, as various interest groups have lobbied succesfully for specific regulations to be included in them.  We can definitely scale back from the 5,000 or so pages in the Trans Pacific Partnership. In the end, though, any free trade agreement is likely to take quite a few pages to set out all the various constraints on protectionism.