Table of contents
Proposed Free Trade agreements - Do equality and ideology matter?
2. Proposed FTAs
2.1. FTAs between more equal partners
2.2. FTA between more unequal partners
2.3. Preliminary conclusion
3. Integration by common ideology - ALBA
4. Bibliography & Further Reading
Economic scholars now widely except that free trade is mutual beneficial for both countries involved. There are several theories that show how international trade can generally increase national welfare. Whether due to comparative advantage as in the Ricardian model1 or due to the abundance of resources as the Heckscher-Ohlin Model proposes2 most of these theories base the advantages of trade in the specialization of each country in what it can do (relatively) good. Through the best possible allocation of resources between the trading partners the maximum yield is gained, is how economists would argue.3
Therefore free trade agreements are and will be a valid source of increased welfare. Especially multilateral free trade agreements (FTAs) appear appealing as they include more countries and therefore more resources which would lead, according to many models, to a more pronounced specialization effect. For that reason this paper will exclusively deal with multilateral agreements. It will briefly browse some FTAs that are currently in the process of planning, negotiating or implementing. It will summarize how scholars value the potential success and influence of these proposed FTAs. From the current streams in the academic field this paper examines whether it makes a difference which kind of countries plan a common FTA: Is there a difference between a FTA that is planed exclusively between developed or developing countries and FTAs that are planned between more unequal trading partners? Finally the paper shows that a common ideology within the partners in the FTA can facilitate the implementation of the FTA. It focuses on one specific region and one specific proposed FTA: South America and the Bolivarian Alliance for the Americas or in its original name Alianza Bolivariana para los Pueblos de Nuestra América (ALBA). I have lived in Bolivia for one year and hence have experienced the beginning of a counter-capitalist economic policy in my day to day life. Having dealt with officials from the economical ministry as well as private and public business people gave me a good overview of the current development in this country. It was fascinating for me to also see how this system influences other countries. Therefore the final part will discuss the current development around the ALBA agreement and their special role in the world from a more personal perspective.
2. Proposed FTAs
This section summarizes some of the proposed FTAs that are currently planned, proposed or in the process of implementation. They are differentiated as FTAs between more equal countries / regions and more unequal countries / regions. This distinction is based on the economic performance (GDP per capita) as described in the United Nations Statistical Report from 20114 and the World Economic Outlook Database by the International Monetary Fund from October 20125. In order to integrate a perspective that goes beyond economic performance I additionally considered the new Human Development Index by the United Nations. I analyzed these values of the respective countries and evaluated the absolute and relative difference. For that matter I followed the guidelines for developing and developed nation status. If the difference between any two countries was unequal in that analysis the FTA was considered as one between rather unequal partners.
2.1. FTAs between more equal partners
A proposed FTA that has been subject of ongoing discussion in the European as well as the US American politics was the Transatlantic Free Trade Area (TAFTA). This proposal was formally brought forward by the European Council in February 2002. The idea of these negations can be summarized as an attempt to integrate the North American Free Trade Agreement (NAFTA) with the economic unified zone of the European Union as well as the European Free Trade Association (EFTA). Although the EU talked about a potential big increase in GDP the potential benefits of the FTA have been expected as relatively little by several economic analysts.6 However and this is important to emphasize not (mainly) due to resistance of one or both of the partners. The main reason is that the North America and the EU already engage in strong trading agreements thus there was little to negotiate on and hence little to improve. Furthermore the induced costs for multilateral liberalization negotiation rounds have been perceived as very high. Until today the most important hindering factors to this agreement are disagreements on how to cover trade in services and the common problem of two many voices coming from Europe. The EU has still not agreed on a position that is supported by a vast majority of the member states. Which role the ongoing dispute between the two big airplane producers Airbus and Boeing as well as recent re-election aims of governments on both sides play is not certain.
Nevertheless it is clear that both partners do not see an urgent pressure to bring forward this agreement since a) the existing agreements still suffice and b) both of their trade policies focus more on other regions.7
Another FTA that fulfills the criteria of one between more equal partners is the initiative Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). The agreement involves seven countries around the Bay of Bengal, namely Bangladesh, Bhutan, Burma, India, Nepal, Sri Lanka, Thailand. s the project was fostered by India’s increasing interest to establish trade relations to their East one might think that this is an agreement which puts a lot of power into India’s hand.8 However this is not the case. The agreement contract is formed by mutual rights and duties that put especially the smaller countries into a comparably strong position.9 Some authors even argue that Thailand was the driving force behind this proposal since it would strengthen Thailand’s position as a trade hub with their surroundings.10 The main agenda of BIMSTEC was to create a counter part to the increasing influence of China in South-East Asia and to offer a convenient trade negotiation partner to the economic powers of the world. In fact the European Union currently is in the beginning of negotiating with the BIMSTEC countries on a trade agreement.
2.2. FTA between more unequal partners
One of the most discussed FTAs might be the Free Trade Area of the Americas (FTAA). It basic plan can be summarized as the aim to integrate the complete American continent (except Cuba) from the North (NAFTA) over Central America and the Caribbean down to South America. As this proposal involved many countries ranging from leaders in the world economy such as the USA, continuing with strongly growing countries such as Brazil and ending with some of the poorest countries outside of Africa such as Bolivia it can be perceived as very unequal. Naturally the interests of these countries are diverse and often contradicting each other. The more developed countries, especially the USA, tried to include very strict property rights that would highly support knowledge based countries while hindering the development of intellectual property in the developing parts of South and Central America. This was consequently opposed by many of the developing nations and heavily criticized by Brazil.11 On the other hand the developing countries in South America asked for an elimination of the US agriculture subsidies. They formulated this as a prerequisite for their agreement to the FTAA. The USA has not been willing to comply with this request. Recently more scholars describe the role of the USA when it came to the failure of the FTAA as a main factor. The general aim of regional hegemony is seen more critical.
1 Roberts P.C., (2003). The Trade Question, Washington Times from 2003-08-28
2 Blaug M. (1992). The methodology of economics, or, how economists explain, Cambridge University Press
3 See for example Krugman, P., Obstfeld, M., Melitz, M. (2012) International Economics Theory & Policy, Harlow, Pearson Education Limited, chapters 1-6 for a cohesive summary of trade theory
4 United Nations Statistic Division (2011) World Statistic Pocketbook, retrieved on 17.01.2013 at http://unstats.un.org/unsd/pocketbook/Pocketbook%202011.pdf
5 International Monetary Fund, World Economic and Financial Survey (2012), World Economic Outlook Database, retrieved on the 19.01.2013 at http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx
6 Langhammer, R., Piazolo, D., & Seibert, H. (2002) Assessing Proposals for a Transatlantic Free Trade Area, Außenwirtschaft - The Swiss Review of International Economic Relations 57 (2), 161-185
7 Charlemagne (2012) Hope and no change, after Barack Obama’s re-election, it is time to push for transatlantic free trade The Economist 10.11.2012
8 Sikri, R. (2009). India’s „Look East“ Policy. Asia-Pacific Review 16(1) 131-145
9 Thailand Law Forum Framework Agreement on the BIMST-EC Free Trade Area Retrieved 13/01, 2013, from http://www.thailawforum.com/database1/frameworkfta.html
10 Yahya, F. (2005) BIMSTEC and emerging patterns of Asian regional and interregional cooperation. Australian Journal of Political Science, 40(3) 391-410
11 Gourevitch, . (2002). Lula’s Rules. American Prospect 13(21) 19.