It appears that regions around the world have made agreements for “free trade”. For example, the European Union, the South East Asian Union, and NAFTA. To what extent are these “agreements” actually free trade, or are they not? From my understanding, NAFTA is more of controlled trade as opposed to complete free trade. But I am not certain for the others.
I find it highly unlikely that a 10,000 page document could have to do with free trade.
I suggest the reading of Jagdish Bhagwati’s “Against protectionism”. The entire third chapter of this short book is about preferred trade agreements (PTAs) the technically correct name for “free trade areas”.
Also in the first chapters of “International economics” by Krugman and Obstfeld there is an analyses of the effects of trade “regionalism”.
The main problem from an economic point of view is that PTAs cause distortions which may offset the benefits of limited regional “free trade”. The reason is that two countries within a PTA gain because of better economies of scale and ricardian specialization, but they have duties for what concerns countries outside the PTA, and this duties may cause allocative distortions (for example, if country C, outside the PTA, is better in producing good X, but duties make more economic for country A, inside the PTA, to buy from country B, inside the PTA, instead of from country C, although more efficient than B).
From a political point of view:
- Politicians are always against free trade beacuse they get funding out of custom duties and they can sell protection to lobbyists in the domestic political process.
- Free trade agreements are a heaven for bureaucrats because they are extremely complex, and statute (positive) laws, being monopolized by the state, is a hunting ground for lobbies and interest groups.
- The better policy is unilateral free trade (reduction or elimination of duties) and “propaganda” in favor of free trade. Organizations like WTO can be helpful in reducing national sovreignty and thus the power of domestic politicians, but they are at risk of simply shifting the political problem to higher levels.
A nice note in Bhagwati’s book is that in the XIX century international trade was regulated by bilateral treaties… I didn’t know that.
There are only two reasons these “free trade” agreements exist. The first reason is that by default all of these governments assume embargoes with everyone else, and do not allow trading. In order to overcome this, they then sign “free trade” agreements which circumvent this and act as exceptions to the rule.
The second reason is that these agreements have very little to do with trading at all. Most of the text in them concerns import tarrifs. They’re basically tax documents, used to benefit the government at the expense of both the consumer and the producer (except in those cases where a producer is subsidised). As such, we can conclude that “free trade” agreements are named in such a way to deliberately obfuscate their protectionist nature.
No “free trade” agreements would be necessary if governments stopped pursuing their protectionist policies. As the name already implies, the only sinew of “free trade” is freedom. Any oversight over free trade in the form of a supra-national agreement between governments could not possibly lead to free trade…
I bet 1/5 of Paul supporters think he is a protectionist because he is against " free trade agreements". The only other people preaching anti NAFTA are the Democrats. Get Ron to discuss trade in depth, and 1/5 of his support will disappear.