April 19, 2001 | Commentary on Foreign Aid and Development

Free Trade: Why Think Local When You Can Go Global?

If Bush administration officials think they have their hands full shepherding the president's tax-cut package through a closely divided Congress, wait until they turn their full attention to reviving a moribund U.S. trade policy. As U.S. Trade Representative Robert Zoellick recently admitted to Congress, Washington spent the better part of the past eight years all but abdicating its leadership role on trade.

That's set to change this month. Mr. Zoellick has just returned from talks in Buenos Aires on the theme of a proposed Western Hemisphere Free Trade Agreement; and President Bush travels on Sunday to Quebec City, for the Summit of the Americas that starts tomorrow, to discuss the agreement and other free-trade issues with regional leaders.

But to borrow a phrase from conservative critics of the president's proposed tax cut, it's time to think bigger. The administration will have to do more to repair the damage inflicted by a series of missed opportunities under President Clinton -- a prime example being the fumbled 1999 World Trade Organization meeting in Seattle -- that has left some trading partners questioning our well-advertised devotion to wealth creation and economic growth.

A truly ambitious trade agenda will require more than just seeking "fast track" negotiating authority from Congress (a critical first step). It means forging deals with countries that already welcome the free movement of goods and capital across their borders.

But this shouldn't be done on an ad hoc basis. In the 2001 edition of the Index of Economic Freedom (co-published by the Heritage Foundation and The Wall Street Journal), we recommend that the U.S. advance a plan for a Global Free Trade Association of countries possessing an open trading system and a policy of economic liberalization. By design, it would reward those that adhere to policies promoting economic liberty.

We propose using four objective criteria (from among the 10 used in the index to grade economic freedom) to determine whether countries qualify for membership in a GFTA. For one, they must boast liberal trading policies; average tariff rates can't exceed 9%. Second, they must encourage domestic and foreign investment in their economies. Third, they must protect private property and have a court system that enforces contracts. Finally, the regulatory burden they impose on businesses must be light.

Besides the U.S., 10 countries receive high marks for all four measures: Chile, the Czech Republic, Denmark, Estonia, Hong Kong, Ireland, Luxembourg, New Zealand, Singapore and the United Kingdom. Twenty-six other countries are "near misses," falling short in only one area, usually regulation, including such diverse nations as Australia, Finland, Hungary, Israel, Sweden, Turkey and Uruguay.

Why join a GFTA? The primary lure would be greater access to one another's markets, and most notably that of the U.S. The 11 countries that qualify immediately produce nearly one-third of the world's gross domestic product. The 26 countries that nearly qualify would have a powerful incentive to liberalize on their own, without being cajoled or having their arm twisted by groups such as the World Trade Organization. In addition, a GFTA has one powerful advantage over the proposed Western Hemisphere Free Trade Agreement: First comes reform, then comes membership.

The GFTA's guiding principle is that economic liberty leads to prosperity. Members would reward one another for embracing freedom. Countries with closed markets couldn't join. Those countries already possessing open markets and a liberal economic order, however, would qualify without lengthy negotiations.

The U.S. could provide an added incentive -- a jumpstart, as it were -- by providing immediate benefits to those who join the GFTA. Washington can drop the quotas that it continues to level on textile and apparel imports. Committed to abandoning them for all countries by 2005, the U.S. should do so immediately for all GFTA members. More controversial, but also more significant, would be a refusal to slap "anti-dumping" duties on members. If we insist on the openness of member countries as the principled basis for admission to the GFTA, then the U.S. has no principled basis for charging them such duties.

Four of the qualifying countries are European Union members, a factor that has been labeled by some as a legal impediment to joining a GFTA. But according to Martin Howe, a Queen's Counsel specializing in EU law, the impediment is political, not legal. And if EU countries clamoring to join a GFTA cause political migraines for the protectionist European group, then so much the better for economic freedom.

Now is the time, as the White House steps up efforts to put our trade policies back on track, for the Bush administration to make the first move toward creating a GFTA. Bilateral and multilateral deals have their uses, but why not allow them to become a stepping stone toward a new global trading arrangement? Why not have all the countries that produce most of the world's GDP united in a global free-trade arrangement?

That's a compelling economic vision -- one we hope Mr. Zoellick will pursue on behalf of the Bush administration.

Denise Froning is policy analyst in and, Gerald O'Driscoll, a former vice president with the Federal Reserve Bank of Dallas, is Director of The Center for International Trade and Economics at the Heritage Foundation.

Originally published in The Wall Street Journal