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FTAs - Do They Really Free The Trade?

Ausgust 25, 2009

In recent years free trade agreements have become fashionable. Thus, when two or more countries reach an agreement to allow free trade (because it is they which in the first instance imposed restrictions on free trade), it is publicized as a Free Trade Agreement. It is misleading and ridiculous! It’s not allowing free trade between the contracting countries, since there are more ‘strings’ here than the natural freedom allows!



By Dr. Khalil Ahmad

[This short paper tires to highlight some of the points of Free Trade Agreements that negate the very concept of Free Trade. It argues that governments do not need any agreement to promote free trade; that is a contradiction in terms. Agreements are reached between trading parties, not between the governments. In order to explain this, South Asian Free Trade Area agreement’s text has been used as a test case. This agreement was reached between Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka in January 2004.] *

Free trade means freedom to trade. Naturally, everyone is free to enter an agreement with anyone in a voluntary manner to sell or purchase anything no matter wherever they happen to live in this world. One cannot be restricted to transact with this or that person only. No doubt, it is political boundaries which have divided this human world into various regions and countries and withdrawn this freedom from people by force.

However, the fact is that free trading can flourish and bring benefits to the trading parties without disturbing these boundaries. What we need is to take this world of ours as one big market which it is; and not as compartmentalized markets serving special interests.

In recent years free trade agreements have become fashionable. Thus, when two or more countries reach an agreement to allow free trade (because it is they which in the first instance imposed restrictions on free trade), it is publicized as a Free Trade Agreement. It is misleading and ridiculous! It’s not allowing free trade between the contracting countries, since there are more ‘strings’ here than the natural freedom allows!

Let us have, as an example, a cursory look at the text of the Agreement on South Asian Free Trade Area (SAFTA). Sure, I am going to quote those clauses which nullify the spirit of free trade!

Article 3, ‘objectives’ clause b reads: “promoting conditions of fair competition in the free trade area, and ensuring equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development;”

Article 3, ‘principles’ clause c reads: “Safta shall be based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems;”

Article 3 clause f reads: “The special needs of the Least Developed Contracting States shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis.”

Article 14 ‘General Exceptions’ deals the final blow. Its two clauses read:

“a) Nothing in this Agreement shall be construed to prevent any Contracting State from taking action and adopting measures which it considers necessary for the protection of its national security.

b) Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the similar conditions prevail, or a disguised restriction on intra-regional trade, nothing in this Agreement shall be construed to prevent any Contracting State from taking action and adopting measures which it considers necessary for the protection of:

(i) public morals;

(ii) human, animal or plant life and health; and

(iii) articles of artistic, historic and archaeological value.”

Article 15 ‘Balance of Payments Measures’ clause 1 reads:

“Notwithstanding the provisions of this Agreement, any Contracting State facing serious balance of payments difficulties may suspend provisionally the concessions extended under this Agreement.”

Article 16, its 7 clauses provide for ‘Safeguard Measures.’

In the final analysis, all these articles and clauses (and others) allow for doing anything on the part of contracting states as regards implementation of the agreement. Of course, there are limits to implementation such as what is not provided for in the agreement cannot be implemented; but, on the other hand, whatever has been provided for in an agreement implementation of that can always be delayed, obstructed or manipulated.

That doesn’t free trade, enslaves it though! For instance, the contracting states can go for measures to protect their local interests from foreign competition in the form of tariffs, quotas and subsidies; whereas these measures are considered inimical to the promotion of free trade.

Thus, under such agreements it remains in the hands of a state to determine how much freedom it is willing to extend. Or say, it remains with the state that what to import or export and from whom and to whom and how and under what conditions! It’s not free trade!

There are other things in this agreement that strengthen the contracting states’ tendency towards protectionism such as gradual reduction (or reduction under specified conditions) of tariff rates, Sensitive Lists. So, these so-called free trade agreements allow but for a restricted freedom to trade. They cannot achieve what free trade in fact offers.

As to the tag of ‘Regional’ attached to the free trade agreements, it is just like restricting one that you are free to move within a specified area. Thus, regional free trade agreements allow trading with contracting countries only and under definite restrictions.

In simple terms our argument runs thus: would we like anybody S (State) ordering or restricting us to do selling or purchasing with persons X, Y, and Z under conditions already decided upon by S. But on the other hand, under the circumstances this allows us at least freedom to transact with X, Y, and Z, under some specified conditions if not with A, B, and C and on our own conditions.

What is important here is the spirit with which government of a country implements the agreement! Thus, if conceived and implemented in good faith, Regional Free Trade Agreements may be the first step in the right direction. They allow something of freedom to trade than having no freedom at all.

* Presented at the Economic and Political Freedom Nexus Dialogue, Session I: Opportunities and Challenges of Regional Free Trade Areas, organized by Friedrich Naumann Stiftung and Federation of Pakistan Chambers of Commerce and Industries on March 30, 2006 in Islamabad.

[The writer is founder/head of the Alternate Solutions Institute, first free market think tank of Pakistan.]



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