The Bush Administration has an early opportunity to
advance free trade and encourage economic liberalization by
concluding the trade agreements with Chile and with Singapore that
the Clinton Administration initiated last year. Pursuing trade
agreements with countries such as these is strategically important
for the United States in order to advance free trade, encourage
economic liberalization, and at the same time promote U.S.
interests in the region.
America's free trade policies have created
a level of competition in the open market that engenders an upward
spiral of innovation, which leads in turn to better products,
better-paying jobs, new markets, and more investment. As a result,
America, like other open economies, is enjoying high living
standards. In the developing world, trading with the United States
fosters economic growth, access to more developed markets, and
strong democratic institutions. For such countries, therefore,
trading freely with open markets like America's carries with it
substantial benefits.
Signing bilateral trade agreements with
Chile and Singapore will involve even greater benefits. They are
the first steps in establishing a new global trade strategy to
reward and unite open economies around the world. Such a strategy
would be based on bilateral and multilateral free trade agreements
among countries that have a proven commitment to economic
liberalization and the protection of property rights. Together,
these agreements would constitute a larger global free trade area
whose leitmotif is open economies.
Establishing this new trade strategy would
help America to encourage less free countries that desperately need
access to more developed markets to liberalize their economies in
order to participate. At the same time, it gives President George
W. Bush an opportunity to set a positive tone for his trade agenda
and reestablish America's leadership in the world.
The New Strategy
Regional trade agreements may offer a way to facilitate trade
flows, but they often do not encourage the economic liberalization
that helps countries enjoy the benefits of free trade. What
happened in Latin America after the United States launched the Free
Trade Agreement of the Americas (FTAA) illustrates this point
well.
Despite laudable goals, the FTAA since its
creation has served in effect to impel Latin countries to put off
desperately needed free-market reforms until 2005, when they will
have to negotiate with the United States. The tide of economic
reform in the late 1980s did not represent, therefore, any real
recognition that protectionism does not work and that open markets
raise living standards; nor did it accomplish the fundamental goal:
lowering trade barriers. As soon as former President Bill Clinton
had launched the promise of free access to the U.S. market, Latin
American countries halted the process of reform so that they would
have something with which to bargain in 2005. This is a common
effect of regional trade strategies like the FTAA in countries for
which the highest priority is retaining political power.
The
alternative is establishing a global free trade area in which freer
trade is based on economic freedom. The 2001 Index of Economic
Freedom, published jointly by The Heritage Foundation and
The Wall Street Journal, introduces a new trade strategy: a
Global Free Trade Association (GFTA). The GFTA is a rules-based
association of nations that meet four main criteria: (1) an open
trade policy, (2) transparent and open foreign investment policies,
(3) the fewest possible regulations on opening new businesses, and
(4) secure property rights. Such an association differs from the
FTAA in that the qualifying conditions have to be met before
a country can enter the association. Thus, the GFTA is a trade
strategy that specifically rewards nations for their
commitment to economic freedom.
Under this strategy, if the best way to
gain free access to U.S. and other developed markets is through
economic liberalization, then protectionist countries driven by
political interest have no choice but to open their markets. Every
decision that protects political power at the expense of economic
reform would set a country farther and farther away from signing
prosperous trade agreements with the world's largest markets.
Protectionism is punished and liberalization rewarded.
Pursuing this strategy now will establish
America as a leader in promoting free trade and economic
liberalization in every region. The agreements with Chile and
Singapore offer the Bush Administration the first steps in
establishing the GFTA. The next two strategically important
countries that should be offered agreements are Uruguay and
Australia. These two countries need only to institute a small set
of reforms in order to qualify for the GFTA. By inviting them to
join this expanded free trade association upon completion of those
reforms, the United States will be sending a strong message to
these regions that the commitment to liberalization has to be
genuine, not just a bargaining tool.
Conclusion
To conclude free trade agreements with Chile and Singapore is
to show the United States' true commitment to advancing free trade,
especially with nations that have demonstrated a proven commitment
to open markets. These steps to establishing a Global Free Trade
Association will initiate a broader new trade policy strategy that
effectively encourages economic liberalization and strong
democracies. With GFTA, the United States will not only further
U.S. interests in two key regions--Asia and Latin America--but
signal good faith with allies and advance the free trade agenda as
well.
Ana I.
Eiras is a Policy Analyst, and Denise H.
Froning is a former Policy Analyst, in the Center for
International Trade and Economics at The Heritage Foundation.