Free‐​Trade Agreements: Steppingstones to a More Open World

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Since securing trade promotion authority in 2002, the Bushadministration has launched an aggressive campaign to negotiatebilateral and regional free-trade agreements (FTAs). FTAs have beenreached with Singapore and Chile and are under negotiation withAustralia, Morocco, Bahrain, and nations of the Central AmericanCommon 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 majorsegment of U.S. trade. As a group, the FTA countries wouldconstitute the world's ninth largest economy and would be America'ssixth largest trading partner.

Free-trade agreements deviate from the multilateral principle ofnondiscrimination, and they can divert trade from more efficient toless efficient but favored import producers. But under the rightconditions, FTAs can inject new competition into our domesticeconomy, lowering prices for consumers and shifting factors ofproduction to more efficient uses, while leveling the playing fieldfor U.S. exporters.

FTAs provide institutional competition to keep multilateraltalks on track. If other members of the World Trade Organizationbecome intransigent, the United States must have the option ofpursuing agreements with a "coalition of the willing" in pursuit oftrade liberalization. FTAs can spur regional integration and blazea trail through difficult areas for broader negotiations in thefuture. As a foreign policy tool, FTAs can cement ties with alliesand encourage countries to stay on the trail of political andeconomic reform.

To maximize the benefits of free-trade agreements, theadministration should seek agreements with countries that canprovide import competition in our domestic market and exportopportunities abroad and that are reform leaders in regions of theworld where models of successful reform are most needed. Judged bythose criteria, the FTAs proposed by the Bush administrationdeserve to be pursued.

Daniel Griswold

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