As everyone has probably heard at this point, yesterday the U.S. Congress approved trade agreements with Korea, Colombia and Panama. They will now be signed into law by President Obama.
I feel obligated to say something about this. But I'm not quite sure what to say.
If you're a free trader (as I am), clearly it's good that some "free trade" agreements were passed. And the vote wasn't even close (unlike with CAFTA in 2005):
The Senate voted 83-15 to approve the South Korea deal and the House 278-151. The Panama agreement cleared the Senate by a vote of 77-22 and the House 300-129.
The Colombia agreement, reflecting Democrats' concerns about labor conditions, garnered the least support but still was approved by margins of 66-33 in the Senate and 262-167 in the House.
In a sense, then, this is a ringing endorsement of free trade.
But of course, there's the question of whether this is really free trade. Under these agreements, the situation is that some countries get lower tariffs than other countries, which is discriminatory/preferential trade. Ideally, all of these bilateral tariff cuts would eventually be multilateralized. Will that ever happen? Until it does, it feels a bit like all those loopholes in the tax code.
And along the same lines, while it's nice (if you're a free trader) to see tariffs cut, what about protectionist measures that can only be dealt with multilaterally, like subsidies? Those issues tend to get ignored in bilateral agreements. And instead of those issues being dealt with, there's more and more focus on intellectual property, which certainly has an impact on trade but isn't, in my view, a "free trade" issue.
Also, the jobs commentary about these agremeents seemed odd to me. I've mentioned this before. I know that given the state of the economy jobs are a very important issue, but I'm not sure I buy any of the numbers being thrown out:
A study by the labor-backed Economic Policy Institute estimated the agreement will cost about 159,000 jobs over seven years. The White House says it will help create or maintain more than 70,000, while congressional Republicans see as many as 250,000 new jobs.
Is it really possible to measure these job numbers accurately? I'm with economist Don Boudreaux on this one:
Politicians have used jobs to sell these trade agreements from the get-go. And that drives economist Donald Boudreaux crazy. He teaches at George Mason University.
DONALD BOUDREAUX: Freer trade doesn't create jobs or reduce jobs.
Freer trade rearranges jobs, Boudreaux says. The U.S. beef industry could grow if South Koreans like our beef better than theirs. But if American carmakers can't compete with South Korean auto imports, then the U.S. may lose some jobs in that sector. Boudreaux says free trade is guaranteed to do one thing.
BOUDREAUX: It makes us richer in the long run, is what it does.
Finally, there's the question of the future of these agreements. In the U.S., it seems that all hopes are on the Trans Pacific Partnership (note the absence of "free trade" from the title). But does that agreement really have a chance? There are already more countries involved than with the bilateral deals that just passed, and if Japan joins the talks, things will get very complicated.
So, my apologies for being insufficiently excited by all of this, but I can't help thinking that policy-makers are focusing on the wrong things and overall progress with free trade is slowing.
ADDED: Larry Friedman has similar thoughts:
I feel as if I should have something insightful to say and that I should take a position on the economic impact these deals will have on the U.S. as a whole, on jobs in particular, and possibly on compliance professionals. The truth is, I am somewhat numb to trade deals.
... I also know that adding additional trade deals adds exponentially to the compliance difficulties. For this, I blame the WTO's inability to get a comprehensive trade deal done during the Uruguay Round. As it is, the NAFTA was used as a model for that agreement and for the TRIPS agreement that followed. But, without comprehensive (meaning global) trade liberalization, the U.S. and other countries have fallen into the somewhat random chaos of bilateral and multilateral regional deals and topic-specific agreements (e.g., the new anti-counterfeiting agreement).
The problem with the trade deals is that each one of them is intended to promote trade within their region. That means that the NAFTA is intended to encourage trade between the North American neighbors. As a result, NAFTA goods may not qualify for duty-free export to Australia because of excessive Canadian or Mexican content. Goods I can certify under the U.S.-Chile FTA may not qualify under the agreements with Singapore, Bahrain, or Morocco. And, the paper work and records for each are similar but distinct. If a company tries to qualify goods under both the U.S.-Central America-Dominican Republic Agreement and the NAFTA, it will likely need to gather two sets of origin certifications from suppliers because the rules of origin for the materials used to make the finished goods differ.... In the long term, the best approach is to scrap these deals in favor of a global approach to trade that lets countries benefit from their comparative advantages while preventing the so-called race to the bottom. Of course, that is much easier said than done, which is exactly why we are now getting three new trade deals.
