Trade Briefing Paper No. 18

Free-Trade Agreements: Steppingstones to a More Open World

By Daniel Griswold
July 10, 2003

Since securing trade promotion authority in 2002, the Bush administration has launched an aggressive campaign to negotiate bilateral and regional free-trade agreements (FTAs). FTAs have been reached with Singapore and Chile and are under negotiation with Australia, Morocco, Bahrain, and nations of the Central American Common Market and the Southern African Customs Union.

None of those countries is among our top 10 trading partners, but considered together, the proposed FTAs would cover a major segment of U.S. trade. As a group, the FTA countries would constitute the world’s ninth largest economy and would be America’s sixth largest trading partner.

Free-trade agreements deviate from the multilateral principle of nondiscrimination, and they can divert trade from more efficient to less efficient but favored import producers. But under the right conditions, FTAs can inject new competition into our domestic economy, lowering prices for consumers and shifting factors of production to more efficient uses, while leveling the playing field for U.S. exporters.

FTAs provide institutional competition to keep multilateral talks on track. If other members of the World Trade Organization become intransigent, the United States must have the option of pursuing agreements with a “coalition of the willing” in pursuit of trade liberalization. FTAs can spur regional integration and blaze a trail through difficult areas for broader negotiations in the future. As a foreign policy tool, FTAs can cement ties with allies and encourage countries to stay on the trail of political and economic reform.

To maximize the benefits of free-trade agreements, the administration should seek agreements with countries that can provide import competition in our domestic market and export opportunities abroad and that are reform leaders in regions of the world where models of successful reform are most needed. Judged by those criteria, the FTAs proposed by the Bush administration deserve to be pursued.

Read the Full Trade Briefing Paper

Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute.