By William S. Ansley, Jr., VP Trade Management Services, UPS Supply Chain Solutions
With nations jumping on the bandwagon, hurrying to align themselves with other countries within the trading community, one might ask, ‘Why not just remove all trade barriers and obstacles to create a universe of global free trade?”
Actually, this idea is not off base considering the ongoing multilateral negotiations of the World Trade Organization’s Doha Round. There is a pressing feeling by several of the countries’ representatives that they don’t want their country left behind, to be alone, without beneficial trading allies that are essential to favorable free trade opportunities.
Since the United States’ first free trade agreement with Israel in 1985, numerous other free trade agreements have been initiated with several more currently undergoing negotiations and signatory approval. It is certainly the direction the global community has been heading and will continue to head. However, due to the different needs of each country - which sometimes can be vastly different ’ free trade often can be described as complex trade.
Free trade agreements involve trade models where tariffs and other barriers to the free flow of goods and services are eliminated, thereby embracing the international exchange between nations or trading blocs of goods and services with preferential duty and origin conclusions. The most common type of free trade agreements are bilateral free trade agreements and regional free trade agreements. Bilateral free trade agreements involve trade pacts between two countries whereas regional free trade agreements include several trading partners agreeing to the trading specifications of the agreement.
The world trading system has continually evolved over the past 50 years and includes such notable trading arrangements as the European Union (EU) in 1993 and the North American Free Trade Agreement (NAFTA) in 1994.
However, not since the US Congress passed the 2002 Bipartisan Trade Promotions Authority Act has the proliferation of US involvement in negotiating bilateral and regional free trade agreements been so apparent.
According to the Office of the US Trade Representative, the Bush Administration has enacted free trade agreements with Jordan, Chile, Singapore, Australia and Morocco and completed negotiations on free trade agreements with several countries in Central America (i.e. Costa Rica, El Salvador, Nicaragua, Guatemala, Honduras) and the Dominican Republic (CAFTA-DR) in 2005.
And that’s not all. Negotiations are under way or about to begin with 12 more countries: Panama, Colombia, Ecuador, Malaysia, Thailand, the five nations of the Southern African Customs Union (SACU), the United Arab Emirates, and the Republic of Korea.
The free trade agreement debate
Free trade agreements have sparked ongoing debates regarding the benefits and risks associated with such agreements. As a matter of perspective and opinion, the pros often outweigh the cons.
Some opponents believe free trade agreements result in job loss, consequently hurting domestic industries. In addition, an ongoing risk is that emphasis on continued free trade agreement engagements may result in wavering multilateral negotiations and the possible creation of overpowering, dominant trading regions.
On the flip side, however, in a broad sense, free trade agreements increase trading opportunities in other global markets by decreasing tariff rates and allowing for increased efficiencies as it relates to productivity. Decreased duties result in a greater choice of less expensive goods, and any excess productivity translates into exports for the member nation. The importation of cheaper commodities allows free trade agreement partners to direct their resources into goods where they are most efficient.
Why so complex?
Until multilateral talks produce significant changes in global trade, free trade agreements will continue to be the riding instrument for free trade among participating countries