November 1, 2000

November 1, 2000 | News Releases on Foreign Aid and Development

Heritage Foundation Proposes Free Trade Association

WASHINGTON, NOV. 1, 2000-Noting that efforts to advance global free trade have stalled in recent years, The Heritage Foundation today unveiled a proposal to "reinvigorate efforts to expand free trade" by establishing an international Free Trade Association (FTA).

The Washington-based think tank called for a voluntary association of nations sharing a firm commitment to open markets-characterized by policies fostering free trade and the free movement of capital-to form a "voluntary and inclusive" association united by the sole guiding principle of "free trade by any route."

Gerald P. O'Driscoll Jr., director of Heritage's Center for International Trade and Economics and an author of the proposal, stressed that such an agreement would supplement- not serve as a substitute for-multilateral, regional or bilateral trade agreements. But the concept is "a marked departure" from the traditional approach to entering trade agreements, he said.

Typically, negotiated agreements call on all parties to alter various trade practices, from tariffs to taxes to regulation, to reach common ground. By contrast, "no country would be asked to barter away any political sovereignty to join the FTA," O'Driscoll said. Indeed, to qualify for-and to retain-FTA membership, countries would have to protect basic economic freedoms in four critical areas: trade policy, capital investment, property rights, and regulation.

Authored by O'Driscoll, Heritage trade analyst Denise Froning, and John Hulsman, Heritage's expert on Europe, the proposal is presented in "The Free Trade Association: A Trade Agenda for the New Global Economy," a chapter in the 2001 Index of Economic Freedom. The Index is an annual report co-published by The Heritage Foundation and the editorial page of The Wall Street Journal.

Currently, only 11 countries would qualify for membership: Chile, the Czech Republic, Denmark, Estonia, Hong Kong, Ireland, Luxembourg, New Zealand, Singapore, the United Kingdom and the United States. Another 26 countries are "within one short step" of qualifying, O'Driscoll said. "Most could meet FTA entrance requirements with only modest reductions in the regulatory burdens they impose on businesses."

Though small in number, the group of nations that currently qualify for membership in the FTA accounts for nearly one third (32.4 percent) of the world's gross domestic product. The prospect of gaining full access to such a massive market should be enough to tempt other countries to loosen the reins on their own economies, O'Driscoll said.

"It seems unlikely that Australia, for example, would reject membership in a free-trade group that includes the United States, Hong Kong, Singapore and New Zealand just to maintain its unnecessarily high regulatory burden on business," he said. "Australia already has reason to deregulate, purely on the grounds of domestic economic interest. The prospect of inclusion in the FTA might well tip the balance of political forces in favor of deregulation, as well."

Essentially, O'Driscoll says, the FTA would constitute "the greatest economic carrot imaginable: almost free access to what is by far the largest market in the world." And, he says, this carrot of economic freedom would lead inevitably to greater political freedom-as well as to greater wealth and higher living standards-for people living in the member countries.

The FTA also would encourage many European countries to shed their addiction to excessive regulation, "a mortal blow to an economy," the analysts note. It takes 12 times longer to set up a new business in Europe than in the United States, and it costs four times as much, making it nearly impossible to compete with countries that have adapted well to the new global economy.

"Closed economies breed corruption, undergird statism, and-worse-enrich political elites at the expense of impoverished masses of people," O'Driscoll said. "Induce them to open their markets, and the ideas and practices imported along with the goods will yield tremendous political and material benefits for the common citizen."

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