Free Trade Revolution: Beware: Today's "Constitutional Convention" Will Shape the Global Trade Landscape for Years to Come

Article excerpt

In the trade world, most of the talk these days revolves around two "mega-regional" trade negotiations, one on each side of the North American continent: the Transatlantic Trade and Investment Partnership (TTIP), and the Trans-Pacific Partnership (TPP). The conversation surrounding these trade talks has focused on issues such as regionalism versus multilateralism, efforts to address regulatory barriers to trade, and the development of new disciplines for state-owned enterprises. What is missing from the debate, however, is recognition of an important conceptual change in the nature and coverage of trade agreements: Countries are no longer negotiating simple free trade agreements; rather, they are negotiating global economic constitutions. That is, they are negotiating the basic principles and laws that govern international economic activity. In effect, through these various negotiations, we are in the midst of a constitutional convention for free trade. The architecture and rules that we choose will shape global economic governance for years to come.

CONSTITUTIONAL VISIONS OF FREE TRADE

In the early days of the free trade debate, free trade as a policy was simply a contrast with protectionism. Protectionists wanted to shield domestic producers from foreign competition; free waders wanted that competition to take place, due in large part to the benefits to consumers. The main instrument of protection at this time was the tariff. Protectionists wanted high tariffs, whereas free traders wanted low or zero tariffs.

Early trade agreements consisted primarily of mutual agreements to reduce tariffs. (They also put limits on the use of an alternative border barrier, import quotas). By the 1930s, however, governments had recognized that domestic laws (such as discriminatory government procurement and discriminatory taxes) could also be used for protectionism. In response to the rise of this new protectionism, governments began to put detailed legal obligations into trade agreements in order to constrain such measures.

However, the scope of these new rules was never well defined. Sometimes the discussion centered around the amorphous concept of "trade barriers," the meaning of which is subject to a wide range of interpretations. As a result, there were opportunities to expand the rules far beyond their original scope. Over the years, various interest groups developed many creative arguments to the effect that a particular issue affected trade in some way, and thus acted as a trade barrier which needed trade rules to govern it.

In the abstract, the subtle distinctions may be difficult to perceive, as all of these rules relate to trade in some way. The following examples of areas now covered by trade agreements help illustrate the expanding scope of the rules, and how trade agreements have moved from simple anti-protectionism agreements to a broader concept involving "constitutional" principles.

As noted, lower tariffs, the removal of import quotas, and a general principle of nondiscrimination in relation to foreign goods and services are standard elements of any trade rules. Such measures all affect trade by discriminating against foreign competition. Without obligations that constrain protectionism, there would not be any free trade and thus no real free trade agreement.

More controversially, however, there are various other issues that have been included in trade talks and agreements over the years. These roles are difficult to characterize. They are often discussed as being "trade related," but that does not tell us much. More accurately, many of these rules could be seen as a form of global economic regulation or global administrative law.

One example is intellectual property. To what extent should free trade agreements protect intellectual property rights? There is no question that the level of intellectual property protection affects trade. Stronger protection will increase exports and lower imports for those countries with the most intellectual property; and weaker protection will increase exports and lower imports from countries without much intellectual property. …