Free Trade Agreements: History and Current Challenges
March 24, 2014
Author: Sarah Baldinger, C’16 W’16
Twenty-three Western countries signed the General Agreement on Tariffs and Trade (GATT) in 1947 as a framework to negotiate lower barriers to trade between them. The GATT was passed to replace the failed International Trade Organization (ITO). The ITO was an organization with similar structures and goals, but it was rejected by the United States as too invasive. The GATT filled the ITO’s place as an international trade institution and held multiple rounds of negotiations to promote freer trade.
In each consecutive round, the GATT expanded. New countries were included, and more policies, not just tariffs and quotas, were defined as barriers to trade. In the mid-1990’s, the Uruguay Round culminated in the creation of the World Trade Organization (WTO) to replace the GATT. While maintaining the same ideals and general structure, the WTO’s dispute settlement body was allowed to render judgments without unanimous consent of the member states, and even more states joined. In 1999, the WTO met in Seattle to convene another round, but massive protests of free trade and its perceived ills shut down the meeting after only a few days. In 2001, the Doha Round was launched with a stated focus on issues facing developing nations. After over ten years of stalled negotiations, the Round was concluded in December of 2013, with modest results.
The critics of free trade list numerous grievances. Many consider the expansion of the definition of free trade to be egregious and harmful. For example, many domestic health and environmental regulations, such as restricting the consumption of beef treated with hormones, have been challenged through the WTO because they require higher standards than other exporting states (Reuters). Additionally, free trade is also viewed as unfair to developing countries. More extreme critics claim that free trade causes developing countries to become dependent on cheap exports and expensive imports from richer countries (Fletcher). Others argue against that rules of free trade were set up to favor more industrialized countries. Trade in manufactured goods is almost completely liberalized, but yet many developed states maintain exorbitant agricultural subsidies that make it impossible for poorer states to compete internationally.
Despite the lack of progress within the WTO, preferential trade agreements (PTAs) have increased dramatically. From the European Union to the North American Free Trade Agreement, groups of countries are beginning to liberalize independently. Other PTAs are bilateral; the US currently has bilateral free trade agreements with countries like Israel, Korea, and Panama (US Department of State). The benefits of PTAs are contested. Some criticize them as exploitative. In the WTO, poorer countries can bargain collectively and demand certain conditions. However, when the US approaches these countries individually, they have virtually no bargaining power. Critics also assert that PTAs inefficiently distort natural trade patterns and could lead to three competing trade blocks: NAFTA, the EU, and Asia. Yet some hail PTAs as a second-best path to global trade liberalization, hoping that these agreements will eventually converge into a global system of free trade.
The United States is currently negotiating two major PTAs: an US-EU Free Trade Agreement and the Trans-Pacific Partnership Agreement between states in Asia and the Americas. In addition to the external effects of PTAs, these agreements produce winners and losers within the United States. Americans who work in industries where the United States does not have a comparative advantage are likely to lose their jobs, as that industry shifts overseas. Conversely, consumers and workers in industries where we have a comparative advantage will profit from PTAs. Consumers will see lower prices, and these industries will have access to new markets. Moving forward, the United States will have to balance these competing interests as it negotiates these historic agreements.
The global trade system is complex and evolving. From the GATT to the WTO to PTAs, free trade has been contested as a Western exploitative ploy and applauded as a champion of economic liberalism. The United States must decide whether it should concede to some of the developing world’s demands at future WTO rounds, whether it will continue to pursue PTAs and what the terms of those PTAs will be. The progress of the last century has been momentous, and one wonders what path trade liberalization will take in the future.
Fletcher, Ian. Free Trade Isn’t Helping World Poverty. 2011 18 March. 2013 15 November <http://www.huffingtonpost.com/ian-fletcher/free-trade-isnt-helping-w_b_837893.html>.
Reuters. Vote ends EU-U.S hormone-treated beef row. 14 March 2012. 27 February 2014 <http://www.reuters.com/article/2012/03/14/eu-trade-beef-idUSL5E8EE50620120314>.
U.S. Department of State. Free Trade Agreements. 15 November 2013 <http://www.state.gov/e/eb/tpp/bta/fta/>.
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