Why Do We Need Free Trade Agreements? Bashar Malkawi
Why Do We Need Free Trade Agreements? Bashar Malkawi
In recent years (2015-2018), national movements against globalization and free trade have reached a critical mass and have resulted in the election of new political leaders who want to stop or even reverse globalization and restore perceptions of lost national power and sovereignty. A mere five years ago, the United States did not presume that its position could be challenged. However, the global context has materially altered and added further complexity.
A large amount of criticism has been leveled against free trade and in particular agreements such as NAFTA based on purported unequal benefits. NAFTA has been singled out by critics as a “bad deal” that needs to be re-negotiated. While critics have claimed Mexico has benefited to a greater extent, the Mexican economy is less than one-tenth the size of the US economy, and it is not plausible that trade integration could dramatically shape the giant US economy, even though integration could exert a substantial impact on the relatively small Mexican economy. Moreover, a substantial part of the critique may be attributable to the high expectations. President Bill Clinton claimed that NAFTA would create 200,000 U.S. jobs within two years and over a million jobs within five years. Yet the expert consensus is that the United States benefited substantially from NAFTA despite the possibility that Mexico benefited to a larger extent.
Amid the rhetoric about renegotiating NAFTA and exiting trade blocks such as Brexit, there is a need to remind ourselves again as to why we need further economic integration rather than disintegration and trade protectionism. International trade constitutes a vital lynchpin of the global governance architecture with a staggering $20 Trillion of annual trade. The global trade order consists of trade policies and systems – in particular Free Trade Agreements (FTAs) – which have played an increasingly crucial role in the infrastructure of global governance and substantially impacting international economic development and strategic affairs. Important questions arise from the current political and economic contexts and the transformative changes sweeping the global governance architecture.
The goals of FTAs are to promote cross-border trade and investment and provide a stimulus to the economy of the trade partners. FTAs arise from perceptions between trading partners that an FTA would benefit the partners by – at a minimum – reducing or eliminating trade barriers and tariffs and establishing rules with respect to what constitutes a product manufactured within the FTA (rules of origin). China’s use of FTAs and vigorous trade has been vital contributing factors in China’s historical rise in recent decades. A larger number of FTA members make for larger gains from an FTA. More recent FTAs are more ambitious and include chapters on services, investment rules and protections and the promotion of labor, environmental standards and intellectual property rules. FTAs create inherent efficiencies through competitive pressures, increased foreign direct investment from non FTA states to utilize the FTA benefits and reduced production costs.
The signing of FTAs not only signifies economic cooperation between nations, but also cooperation on the political and institutional fronts. FTAs are inextricably and increasingly linked to global strategy and the international political order and broad, geopolitical and global governance contexts and have always played a role in international investment and trade agreements. U.S. trade policy has been dominated by the establishment of FTAs to both create new, and cement existing economic relationships, and a means of entrenching the presence of the U.S. in different regions including the Middle East. Indeed, the importance of the strategic context is further clearly illustrated by NAFTA. Prior to NAFTA, US-Mexico relations were cool with Mexico maintaining a relatively “radical left anti-imperialistic” policy. Mexican attitudes towards American investors have been described as antagonistic. Yet NAFTA changed a former cool neighborly relationship into a significantly warmer friendship.
In an intensively competitive globalized economic context, countries with more open trade and foreign investment regimes will outclass those countries which have restrictive trade and foreign direct investment policies.
In recent years (2015-2018), national movements against globalization and free trade have reached a critical mass and have resulted in the election of new political leaders who want to stop or even reverse globalization and restore perceptions of lost national power and sovereignty. A mere five years ago, the United States did not presume that its position could be challenged. However, the global context has materially altered and added further complexity.
A large amount of criticism has been leveled against free trade and in particular agreements such as NAFTA based on purported unequal benefits. NAFTA has been singled out by critics as a “bad deal” that needs to be re-negotiated. While critics have claimed Mexico has benefited to a greater extent, the Mexican economy is less than one-tenth the size of the US economy, and it is not plausible that trade integration could dramatically shape the giant US economy, even though integration could exert a substantial impact on the relatively small Mexican economy. Moreover, a substantial part of the critique may be attributable to the high expectations. President Bill Clinton claimed that NAFTA would create 200,000 U.S. jobs within two years and over a million jobs within five years. Yet the expert consensus is that the United States benefited substantially from NAFTA despite the possibility that Mexico benefited to a larger extent.
Amid the rhetoric about renegotiating NAFTA and exiting trade blocks such as Brexit, there is a need to remind ourselves again as to why we need further economic integration rather than disintegration and trade protectionism. International trade constitutes a vital lynchpin of the global governance architecture with a staggering $20 Trillion of annual trade. The global trade order consists of trade policies and systems – in particular Free Trade Agreements (FTAs) – which have played an increasingly crucial role in the infrastructure of global governance and substantially impacting international economic development and strategic affairs. Important questions arise from the current political and economic contexts and the transformative changes sweeping the global governance architecture.
The goals of FTAs are to promote cross-border trade and investment and provide a stimulus to the economy of the trade partners. FTAs arise from perceptions between trading partners that an FTA would benefit the partners by – at a minimum – reducing or eliminating trade barriers and tariffs and establishing rules with respect to what constitutes a product manufactured within the FTA (rules of origin). China’s use of FTAs and vigorous trade has been vital contributing factors in China’s historical rise in recent decades. A larger number of FTA members make for larger gains from an FTA. More recent FTAs are more ambitious and include chapters on services, investment rules and protections and the promotion of labor, environmental standards and intellectual property rules. FTAs create inherent efficiencies through competitive pressures, increased foreign direct investment from non FTA states to utilize the FTA benefits and reduced production costs.
The signing of FTAs not only signifies economic cooperation between nations, but also cooperation on the political and institutional fronts. FTAs are inextricably and increasingly linked to global strategy and the international political order and broad, geopolitical and global governance contexts and have always played a role in international investment and trade agreements. U.S. trade policy has been dominated by the establishment of FTAs to both create new, and cement existing economic relationships, and a means of entrenching the presence of the U.S. in different regions including the Middle East. Indeed, the importance of the strategic context is further clearly illustrated by NAFTA. Prior to NAFTA, US-Mexico relations were cool with Mexico maintaining a relatively “radical left anti-imperialistic” policy. Mexican attitudes towards American investors have been described as antagonistic. Yet NAFTA changed a former cool neighborly relationship into a significantly warmer friendship.
In an intensively competitive globalized economic context, countries with more open trade and foreign investment regimes will outclass those countries which have restrictive trade and foreign direct investment policies.
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