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July 10, 2003 No.


Free-Trade Agreements
Steppingstones to a More Open World
by Daniel T. Griswold

Executive Summary

Since securing trade promotion cient uses, while leveling the playing
authority in 2002, the Bush administra- field for U.S. exporters.
tion has launched an aggressive campaign FTAs provide institutional competition
to negotiate bilateral and regional free- to keep multilateral talks on track. If other
trade agreements (FTAs). FTAs have members of the World Trade Organization
been reached with Singapore and Chile become intransigent, the United States
and are under negotiation with Australia, must have the option of pursuing agree-
Morocco, Bahrain, and nations of the ments with a “coalition of the willing” in
Central American Common Market and pursuit of trade liberalization. FTAs can
the Southern African Customs Union. spur regional integration and blaze a trail
None of those countries is among our through difficult areas for broader negotia-
top 10 trading partners, but considered tions in the future. As a foreign policy tool,
together, the proposed FTAs would cover a FTAs can cement ties with allies and
major segment of U.S. trade. As a group, the encourage countries to stay on the trail of
FTA countries would constitute the world’s political and economic reform.
ninth largest economy and would be To maximize the benefits of free-
America’s sixth largest trading partner. trade agreements, the administration
Free-trade agreements deviate from should seek agreements with countries
the multilateral principle of nondiscrim- that can provide import competition in
ination, and they can divert trade from our domestic market and export oppor-
more efficient to less efficient but tunities abroad and that are reform lead-
favored import producers. But under the ers in regions of the world where models
right conditions, FTAs can inject new of successful reform are most needed.
competition into our domestic economy, Judged by those criteria, the FTAs pro-
lowering prices for consumers and shift- posed by the Bush administration
ing factors of production to more effi- deserve to be pursued.

Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute.
As a group, the ber of important strategic and foreign policy
F TA countries Introduction considerations that cannot be ignored.
None of the countries we are negotiating with is
would constitute Since final passage of trade promotion author- among our top 10 trading partners, but together the
the world’s ninth ity in 2002, the Bush administration has launched FTAs would cover a major segment of U.S. trade.
an aggressive campaign to negotiate bilateral and Combined, Singapore, Chile, Australia, Morocco,
largest economy regional free-trade agreements (FTAs). In May Bahrain, the Central American Common Market,
and would be 2003 the United States signed an FTA with and the Southern African Customs Union have a
America’s fourth Singapore, and in June 2003 it signed one with total population of 157 million and annual eco-
Chile. Congress could vote on those agreements nomic output equivalent in purchasing-power par-
largest export by late summer or early fall. ity to $1.4 trillion. As a group, the FTA countries
market. Meanwhile, the administration has begun would constitute the world’s ninth largest economy.
negotiating FTAs with Australia; Morocco; They would be America’s seventh largest source of
Bahrain; the five Central American Common imported goods and fourth largest export market—
Market nations of Guatemala, Honduras, El they sold $42 billion to Americans in 2002 and
Salvador, Nicaragua, and Costa Rica; and the five bought $45 billion in American-made goods. In
Southern African Customs Union nations of terms of two-way trade, the group would be
South Africa, Botswana, Namibia, Lesotho, and America’s sixth largest trading partner, behind only
Swaziland. Negotiations initiated in 1994 contin- Canada, Mexico, Japan, China, and Germany.
ue with 33 other Western Hemisphere nations on Eliminating barriers to trade with so many people
a Free Trade Area of the Americas. On May 9 would be a positive step for U.S. trade policy.
President Bush proposed “the establishment of a This paper examines the merits of negotiating
U.S.–Middle East free-trade area within a free-trade agreements. It analyzes both the eco-
decade, to bring the Middle East into an expand- nomic and noneconomic implications of FTAs,
ing circle of opportunity, to provide hope for the weighs the costs and benefits of the specific
people who live in that region.”1 Egypt could join agreements put forward by the Bush administra-
Morocco and Bahrain on the list of potential tion in light of those implications, and proposes
FTA partners. Other potential FTA partners guidelines for future negotiations to maximize the
proposed by members of Congress include benefits and minimize the costs to both the U.S.
Taiwan, New Zealand, and the United Kingdom. economy and our broader national interests.
Those agreements already negotiated or in On balance, the bilateral and regional agree-
the pipeline are sure to spark the usual debate ments proposed by the Bush administration
about free trade versus fair trade, environmental would further our national interests. If crafted
standards and working conditions in poor coun- properly, those agreements would strengthen the
tries, jobs and wages in the United States, and U.S. economy by injecting new import competi-
the other issues that inevitably swirl around any tion into domestic markets and opening markets
trade agreement before Congress.2 But bilateral abroad more widely to U.S. exports. More impor-
and regional trade agreements also raise a pecu- tant, they would encourage economic reform
liar set of policy issues, economic and noneco- abroad and cement economic and foreign policy
nomic alike, that are generally neglected when ties between the United States and key allies.
deals are debated and voted on.
Even for supporters of trade expansion, not
every bilateral and regional free-trade agree- The Peculiarities of FTAs
ment proposed is necessarily good economic
policy. Despite the name, free-trade agree- For anyone who supports free trade, support
ments do not always promote more trade, nor for free-trade agreements would at first glance
do they necessarily leave parties to the agree- seem to be automatic. Such agreements by defi-
ment or the rest of the world better off. Beyond nition lower barriers to trade between partici-
the economic ambiguities of FTAs are a num- pants, and lowering or eliminating barriers alto-

gether has been the aim of the whole trade lib- began in the 1950s as the six-member
eralization movement. Yet regional and bilateral European Economic Community. Other well-
trade agreements raise legal and economic ques- known FTAs or customs unions among WTO
tions that should be addressed. members are the European Free Trade
Association, the North American Free Trade
Departing from Multilateral Trade Agreement, the Southern Common Market,
FTAs are an exception to the basic legal prin- the Association of Southeast Asian Nations
ciple of nondiscrimination in international trade. Free Trade Area, and the Common Market of
Article III of the basic charter the World Trade Eastern and Southern Africa.
Organization (the General Agreement on Tariffs In fact, free-trade agreements have been
and Trade 1947 as amended by the 1994 Uruguay proliferating among WTO members. Today
Round Agreement) declares as a fundamental more than 150 such agreements are in effect,
principle that market access should be extended and the trend has been accelerating in the last
to all members on a most-favored-nation, or decade. In the first 46 years of the GATT,
nondiscriminatory, basis. Specifically, “any advan- between 1948 and 1994, 124 such agreements
tage, favor, privilege or immunity granted by any were signed (many of which have since
contracting party to any product originating in or expired), an average of 2.7 per year. Since 1995
destined for any other country shall be accorded the WTO has been notified of 130 such agree- More and more
immediately and unconditionally to the like ments, an average of more than 15 per year.10 WTO members
product originating in or destined for the territo- Today an estimated 43 percent of internation- are choosing to
ries of all other contracting parties.”3 al trade occurs under free-trade agreements,
Of course, FTAs explicitly deviate from that and that share would reach 55 percent if agree- negotiate FTAs.
principle. They grant an advantage (lower or zero ments currently being negotiated worldwide The question for
tariffs) to parties to an agreement that are not were to be implemented. 11
granted to other members of the WTO that are Despite Article I, free-trade agreements are a
U.S. trade policy is
not parties to the agreement. But free-trade legal fact of life in international trade. More and whether we should
agreements and customs unions, when properly more WTO members are choosing to negotiate join or resist the
crafted, are consistent with GATT rules. FTAs. The question for U.S. trade policy is
When the GATT was originally signed in whether we should join or resist the trend. trend.
1947, its founding members carved out an excep-
tion for free-trade areas. Article XXIV of the The Messy Economics of FTAs
GATT allows customs unions or free-trade The economics of FTAs is more ambiguous
agreements between members,4 recognizing “the than the legalities. Even though FTAs by def-
desirability of increasing freedom of trade by the inition result in lower trade barriers between
development, through voluntary agreements, of member countries, they do not necessarily
closer integration between the economies of the result in economic gains for all members or the
countries parties to such agreements.”5 Such world as a whole.
agreements are allowed provided they (1) do not Economists have been investigating this
result in higher trade barriers overall for WTO phenomenon since 1950, when Jacob Viner
members outside the agreement,6 (2) eliminate published his seminal study, The Customs
“duties and other restrictive regulations of com- Union Issue.12 Viner noted that customs unions
merce” on “substantially all the trade between the can promote new trade among members, but
constituent territories . . . in products originating they can also divert trade from more efficient
in such territories,”7 and (3) do so “within a rea- producers outside the agreement.
sonable length of time.”8 Article XXIV can be If signed with a low-cost foreign producer,
waived entirely by a two-thirds vote of WTO an agreement can result in trade creation by
members. 9 allowing the low-cost producer to enter the
The most obvious exception under Article domestic market tariff free, reducing domestic
XXIV has been the European Union, which prices, and displacing higher-cost domestic pro-

ducers. But if signed with a relatively high-cost ally predominates under free-trade agreements.
foreign producer, an agreement can result Settling that dispute definitively is beyond the scope
merely in trade diversion by allowing the high- of this paper.14 But we do know that the evidence is
er-cost importer to displace lower-cost foreign mixed and that the short-term, static economic
importers simply because producers in the new impact of a free-trade agreement is only one factor
FTA partner can import tariff free. As Viner in deciding whether a particular FTA meets the test
concluded, customs unions are likely to yield of good public policy. The possibility of trade diver-
more economic benefit than harm when “they sion is not sufficient reason to reject the Bush
are between sizeable countries which practice administration’s policy of pursuing FTAs.
substantial protection of substantially similar
[that is, competing] industries.”13
To maximize trade creation, FTAs should How FTAs Advance Trade
unleash real competition in previously protected Liberalization
markets. From an economic perspective, the
essential purpose and principal payoff of inter- Even if trade diversion occurs, free-trade agree-
national trade is expanded competition within ments can advance the goals of expanding free mar-
the domestic economy and expanded markets kets, individual liberty, and more peaceful coopera-
abroad for domestic producers. Increased import tion among nations. In addition to their short-term
competition results in lower prices for consum- economic effects, free-trade agreements can
ing households and businesses, more product advance American interests in several ways.
choice, higher quality, and increased innovation.
By stimulating more efficient production, A Safety Valve for the Multilateral System
import competition increases the productivity of One, FTAs provide an important safety valve
workers, real wages, living standards, and the if multilateral negotiations become stuck—an all-
long-run growth of the economy. too-real possibility. Multilateral negotiations
If an FTA does not result in lower prices for through the GATT and now the WTO can be
the importing country but merely reshuffles long, tortuous, and uncertain. Since the Kennedy
imports from the rest of the world to FTA part- Round concluded in 1967, only two other com-
ners, the importing country can suffer a welfare prehensive multilateral agreements have been
The best free-trade loss. Its government loses tariff revenue, but its reached—the Tokyo Round Agreement in 1979
consumers do not reap any gain from lower and the Uruguay Round Agreement in 1994.
agreements allow a prices. In effect, the importing country’s treasury And because of the need for consensus, it takes
large and competi- subsidizes less efficient production in the partner only one of the 146 nations in the WTO to scut-
tive foreign pro- country. If global prices outside the FTA fall tle a new agreement.
because of the diverted demand, then the rest of To cite one plausible scenario, the French gov-
ducer to displace the world loses from lost producer surplus. ernment could prevent completion of a Doha
domestic producers To minimize trade diversion, the best FTAs Round Agreement because of its long-standing
allow a large and competitive foreign producer objections to liberalization of agricultural trade.
in a large and to displace domestic producers in a large and Negotiators have already missed a March 31, 2003,
protected domestic protected domestic market, thus delivering deadline for preliminary agreements on agriculture,
market, thus lower prices and higher real incomes to workers and doubt is widespread that the round will be con-
and families. The worst allow less competitive cluded by 2005 as agreed in the 2001 agreement
delivering lower foreign producers to replace more competitive that launched it. The Uruguay Round, it should be
prices and higher foreign producers in a large and protected remembered, almost foundered on the subject of
domestic market, costing the treasury tariff rev- agriculture. Given the history of multilateral nego-
real incomes to enue without delivering lower domestic prices or tiations, it would be unwise to put all of our tradable
workers and more efficient domestic production. eggs in the Doha Round basket.
families. Free-trade economists argue among themselves FTAs provide institutional competition to
about whether trade creation or trade diversion usu- keep multilateral talks on track. If other WTO

members become intransigent, the United with Chile. According to the National Association Negotiating FTAs,
States should have the option of pursuing of Manufacturers, U.S. exporters have lost market or at least retaining
agreements with a “coalition of the willing” in share in Chile since its government began to
pursuit of trade liberalization. Negotiating aggressively pursue free-trade agreements with its the option to do so,
FTAs, or at least retaining the option to do so, non-U.S. trading partners in 1997. Especially hard- can send a signal to
can send a signal to other WTO members hit by the tariff differential have been U.S. exports other WTO
that, if they are unwilling to negotiate serious- to Chile of wheat, soybeans, corn, paper products,
ly to reduce trade barriers, we retain the right plastics, fertilizers, paints and dyes, and heating and members that, if
to find bilateral and regional partners who will. construction equipment.15 All those sectors have they are unwilling
Knowing that WTO members, including the seen their market share drop significantly in the
United States, can pursue FTAs outside the absence of a U.S.-Chile free-trade agreement. to negotiate
multilateral process can focus the minds and seriously to reduce
wills of negotiators to reach an agreement. Institutionalizing Reforms Abroad trade barriers, we
Fears that FTAs could divert attention from the Three, FTAs can help less-developed coun-
multilateral track are unfounded. Most WTO tries lock in and institutionalize ongoing econom- retain the right to
members that have pursued regional and bilateral ic reforms. A signed agreement prevents nations find bilateral and
FTAs have not abandoned their commitment to from backsliding in times of economic or political
multilateral negotiations. The U.S. government duress. Agreements assure foreign investors that
regional partners
signed agreements with Israel, Canada, and Mexico reforms mark a permanent commitment to liber- who will.
during the Uruguay Round negotiations from 1986 alization. For example, when Mexico suffered its
to 1994 without reducing its commitment to a final peso crisis in 1994–95, its NAFTA commitments
multilateral agreement. And there is no evidence kept its market open to U.S. exports. The assur-
that pursuit of FTAs today has distracted the Bush ance of an FTA also works the other way, guaran-
administration from the ongoing Doha Round of teeing that exporters in the partner country will
WTO negotiations. Indeed, U.S. Trade Represen- enjoy duty-free access to the large American mar-
tative Robert Zoellick has been leading the charge ket. By signing an FTA with the United States,
in the Doha Round with aggressive proposals to less-developed countries signal to the rest of the
liberalize global trade in manufactured goods, agri- world that they are serious about embracing glob-
cultural products, and services. al competition. That signal, combined with access
to the U.S. market, can help to attract foreign
A Level Playing Field for U.S. Exporters investment and spur faster development.
Two, FTAs can level the playing field for
U.S. exporters who have been put at a disadvan- Blazing a Trail for Broader Negotiations
tage by free-trade agreements that do not Four, FTAs can provide useful templates for
include the United States. The United States is broader negotiations. As the members of the
party to only 3 of the 150 or so FTAs currently WTO grow in number and diversity, reaching
in force around the world—NAFTA and bilat- consensus among all 146 members becomes
eral agreements with Israel and Jordan. Even more difficult. Negotiators can be forced to con-
though American producers may be the most sider only the lowest common denominator
efficient in the world in a certain sector, our acceptable to all members. Negotiating with only
exporters may not be able to overcome the one country or a small group of like-minded
advantage of rival foreign producers who can countries can allow more meaningful liberaliza-
export tariff free to countries with which their tion in areas such as sanitary and phytosanitary
governments have signed an FTA. (i.e., animal and plant) regulations, technical bar-
In Chile, for example, U.S. exporters encounter riers to trade, service trade and investment, elec-
a uniform 6 percent tariff. Competing exporters in tronic commerce, customs facilitation, labor and
the European Union, Canada, and Brazil, in con- environmental standards, dispute settlement, and
trast, sell duty-free in the same market because their market access for politically sensitive sectors.
governments have signed free-trade agreements Those agreements, in turn, can blaze a trail

for wider regional and multilateral negotia- ments are now awaiting action by Congress. Both
tions. The U.S.-Chile FTA provides an exam- are comprehensive, covering not only market
ple of how to incorporate labor and environ- access for goods, including farm products, but
mental standards into the text of an agreement also services, investment, intellectual property,
without threatening to hold trade hostage to and nontariff barriers. Neither agreement
rich-country demands for higher standards in excludes any goods from free trade, although they
less-developed countries. FTAs can provide provide phase-in periods of as long as 12 years for
creative solutions to sticky political problems certain politically sensitive products.
that can then be adapted in other agreements. What follows is a brief survey of the major
strengths and weaknesses of the two completed
Internal Competition and Integration agreements now awaiting congressional approval.16
Five, FTAs can spur internal reform and con-
solidation within member states, enhancing eco- The U.S.-Chile FTA
nomic growth and support for more liberalization. The United States and Chile have been dis-
By encouraging regional integration, FTAs hasten cussing a free-trade agreement for almost a
the consolidation of production within the FTA, decade. Of all the countries of Latin America,
increase economies of scale, and create a more Chile has traveled the furthest along the road
Of all the countries integrated production process. Consolidation may of economic reform. Since the 1970s its gov-
of Latin America, be most pronounced in more heavily protected ernment has liberalized trade and foreign
Chile has traveled service sectors such as telecommunications, finan- investment, cut taxes and regulations, and pri-
cial services, and transportation. More efficient vatized its pension system. According to the
the furthest along industries and infrastructure can yield dynamic Economic Freedom of the World survey, Chile’s
the road of eco- gains year after year, boosting growth, investment, economy is one of the freest in the world, rank-
and demand for imports from FTA partners as ing 15th out of 123 economies rated. 17
nomic reform. A well as the rest of the world. Chileans have reaped the rewards. Until the
free-trade agree- For all those reasons, the Bush administration’s recent global slowdown, economic growth in Chile
ment would, among agenda of negotiating free-trade agreements is had averaged more than 8 percent a year since the
worth pursuing. Under the right conditions, FTAs late 1980s.18 The share of people living in poverty
other benefits, can inject new competition into our domestic has been cut in half.19 Chile is the only South
recognize Chile’s economy, lowering prices for consumers and shift- American country that has earned an investment
commitment to free ing factors of production to more efficient uses, grade on its government bonds. As other Latin
while leveling the playing field for U.S. exporters. American countries have suffered through political
trade and free Beyond those immediate benefits, FTAs can pro- and economic turmoil, Chile has been a model of
markets. vide institutional competition for multilateral talks, stability. A free-trade agreement with Chile would,
spurring integration among FTA countries and among other benefits, recognize Chile’s commit-
liberalization abroad and blazing a trail through ment to free trade and free markets.
difficult areas for broader negotiations in the future. The strength of the U.S.-Chile FTA is its
As a foreign policy tool, FTAs can cement ties comprehensiveness. No sector is excluded from
with allies and encourage countries to stay on the liberalization. The Office of the U.S. Trade
trail of political and economic reform. Representative notes that 87 percent of two-
way trade in goods will be tariff free upon
enactment of the agreement, with most of the
On the Docket: Singapore remaining tariffs and quotas eliminated after
and Chile four years. 20 The qualifier is that liberalization
for the sectors most likely to provide the most
On May 6, 2003, the Bush administration vigorous import competition—and hence pro-
signed a free-trade agreement with the govern- voke the most political reaction—has been
ment of Singapore, and on June 6 it signed an postponed for up to 12 years.
FTA with the government of Chile. Both agree- The full economic benefits of the U.S.-Chile

FTA will be delayed by the relatively slow
phaseout of our most damaging trade barriers. Chile
For example, the amount of sugar that can be Population (2002):
imported from Chile is set at a small 2,000 met- 15.5 million
ric tons a year and is allowed to grow by only 5 Economy (2001, purchasing power parity):
percent per year during the extended phaseout $153 billion GDP
period. Quotas on imports of highly protected $10,000 GDP per capita
commodities such as butter, milk powder, and Economic Freedom (1999):
cheese are maintained for 7 to 12 years. Beef 8.0 (out of 10.0), ranks 15th
quotas are maintained for 3 years.21 U.S. Services Imports from Chile (2001):
Quotas on avocados, one for imports from $840 million
U.S. Services Exports to Chile (2001):
January through September, another for imports
$1.31 billion
from October through December, expand 5 per-
U.S. Goods Imports from Chile (2002):
cent per year before expiring after 12 years. $3.78 billion
Poultry, tires, copper, and “hotel and restaurant Top Imports from Chile (2002):
china” will all be subject to tariffs for up to 10 Fruits, frozen juices ($828 million)
years after enactment of the agreement. No cuts Copper ($723 million)
will be made in tariffs on imported wine from Fish/shellfish ($508 million)
Chile for the first 7 years of the agreement and Shingles/wallboard ($341 million)
will be eliminated entirely only after 12 years. So Lumber ($172 million)
any trade advocates who want to toast enactment Chemicals–organic ($139 million)
of the agreement with imported Chilean wine Wine ($138 million)
will still need to pay a tariff for the experience. U.S. Goods Exports to Chile (2002):
$2.61 billion
From the mercantilist point of view, accord-
Top Exports to Chile (2002):
ing to which imports are the price a nation pays
Computer accessories ($222 million)
for the privilege of exporting, postponing the Excavating machinery ($171 million)
liberalization of more competitive imports Industrial engines ($97 million)
such as wine will be touted as a selling point of Computers ($95 million)
the agreement. But in terms of America’s Other household goods ($88 million)
national welfare, postponement of liberaliza- Materials handling equipment ($81 million)
tion only delays the economic payoff of the Chemicals–other ($74 million)
agreement. Those delays increase the odds at U.S.-Owned FDI in Chile (end of 2001):
least in the short run that trade diversion will $11.7 billion
predominate over trade creation. Sales by U.S.-Owned Affiliates in Chile (2000):
On services, the U.S.-Chile FTA is far-reach- $3.1 billion
ing and breaks new ground. In general, the FTA
guarantees Americans the right to sell services
across the border and to establish, acquire, and ing, adult education, and professional services.
operate investments in Chile on an equal footing The Coalition of Service Industries, the main
with domestic and other foreign investors, while American lobbying group for trade liberaliza-
extending reciprocal rights to Chilean service tion in services, pronounced the agreement a
providers. The agreement wisely incorporates a “milestone” that will set a high standard for
“negative list” approach: all sectors are liberalized future trade agreements that seek to liberalize
unless specifically excluded. what remains a highly protected and regulated
Specifically, the agreement will fully open the international services sector. According to CSI,
Chilean market to such competitive U.S. service the U.S.-Chile FTA is “the first trade agreement
sectors as tourism, advertising, computers and that has ever committed another country to
telecommunications, construction and engi- apply the same high standards of regulatory
neering, express delivery, distribution and retail- transparency that we enjoy in the U.S.”22

On the related matter of capital controls, the specific level of environmental and labor regulations
agreement affirms and protects the right of foreign that would be inappropriate for a country at Chile’s
investors to enjoy the same rights as domestic com- stage of development. It does require that existing
panies. Investors are guaranteed the right, among regulations be enforced and not “weakened” to gain
others, to repatriate profits and capital and to do so an alleged advantage in promoting exports or
“in a freely usable currency at the market rate of attracting investment. Second, the rules prohibit a
exchange prevailing on the date of transfer.”23 sustained pattern of violations, not isolated inci-
In a problematic clause, the agreement does dents. Third, the dispute settlement provisions
grant the Chilean government the right to emphasize consultation over litigation and mone-
impose capital controls on short-term flows tary fines over trade sanctions. The advantage of
under certain conditions. Investors who lose fines is that they do not undermine the central pur-
money if their funds are “substantially impeded” pose of the agreement, which is wealth creation
would be able to use the dispute settlement through expanding trade.
mechanism to recover damages after a cooling-
off period of 6 to 12 months.24 Ideally, capital The U.S.-Singapore FTA
should be as free to flow across international Tiny Singapore, population 4.5 million,
borders as goods or services,25 but even with this boxes far above its weight in the global economy.
exception, the agreement grants stronger trans- The island entrepôt ranks 16th in the world as a
fer rights to investors than are currently granted source of imports to the United States and 11th
under the International Monetary Fund as a destination for U.S. exports. It is also one of
Articles of Agreement, the General Agreement the top destinations for U.S. direct foreign
on Trade in Services, and the General investment abroad. The Singapore economy is
Agreement on Tariffs and Trade. one of the freest and most open in the world,
Another problematic section allows the impo- which largely explains why its citizens enjoy a
sition of fines and other punishments if either first-world standard of living.
party fails to adequately enforce labor and envi- Singapore is the leading free-trade nation in
Singapore is the ronmental standards. The agreement asserts, “A its region. An FTA with Singapore would
Party shall not fail to effectively enforce its labor strengthen America’s economic ties to Southeast
leading free-trade laws, through a sustained or recurring course of Asia and create opportunities for U.S. investors
nation in its region. action or inaction, in a manner affecting trade and exporters in a populous and economically
between the Parties, after the date of entry into promising region of the world. Southeast Asia is
An FTA would force of this Agreement.” The agreement contin- especially strategic because it is home to 20 per-
strengthen ues: “The Parties recognize that it is inappropri- cent of the world’s Muslims. The government of
America’s economic ate to encourage trade or investment by weaken- Singapore has been a steadfast ally of the United
ing or reducing the protections afforded in States in the war against international terrorism.
ties to Southeast domestic labor laws.”26 (The chapter on the envi- The U.S.-Singapore Free Trade Agreement
Asia and create ronment contains almost identical language.)27 commits both nations to comprehensive liber-
Failure to comply can result in monetary fines alization of bilateral trade in goods and services
opportunities for and, eventually, trade sanctions. and guarantees protection of foreign invest-
U.S. investors and Supporters of free trade rightly worry that ment. Even though tariffs on most trade
exporters in a enforcing labor and environmental standards between the United States and Singapore are
through trade agreements could create a lofty- already low or have been eliminated, the agree-
populous and sounding pretext for protectionism. And by raising ment will guarantee duty-free access.
economically trade barriers as a method of enforcement, such With a few of the usual exceptions (beef,
promising region of arrangements can actually undermine the growth dairy products, and sugar among them), the
and development that make higher standards pos- United States commits itself upon enactment
the world. sible.28 But the U.S.-Chile FTA contains several of the agreement to reduce tariffs on goods
layers of protection to guard against abuse of those imported from Singapore to zero. Tariffs on
provisions. First, the agreement does not require a products exempted from immediate liberaliza-

tion will be phased out within 10 years.29
Singapore’s commitment on goods liberaliza- Singapore
tion is a model of elegance and simplicity: The Population (2002):
few categories of goods subject to duties “will 4.5 million
be duty free on the date this Agreement enters Economy (2001, purchasing power parity):
into force.” There are no exceptions.30 $106 billion GDP
The agreement guarantees market access for a $24,700 GDP per capita
broad range of service sectors, whether the service Economic Freedom (1999):
is delivered across the border or by investing in a 9.3 (out of 10.0), ranks 2nd
local presence. Like the U.S.-Chile FTA, the U.S. Services Imports from Singapore (2001):
agreement follows the “negative list” approach of $2.01 billion
U.S. Services Exports to Singapore (2001):
liberalizing all sectors except an explicit few.
$4.08 billion
Among the more competitive U.S. service sectors U.S. Goods Imports from Singapore (2002):
that will enjoy nondiscriminatory treatment in $14.8 billion
Singapore under the agreement are tourism, Top Imports from Singapore (2002):
express delivery, telecommunications, advertising, Computer accessories ($7.30 billion)
construction and engineering, and financial ser- Semiconductors ($1.27 billion)
vices, including banking and insurance. Pharmaceutical preparations ($1.21 billion)
Specifically, Americans will be allowed to own U.S. goods returned ($881 million)
and operate full-service banks in Singapore with- Telecommunications equipment ($429 million)
in 18 months of enactment, and unlimited Medicinal equipment ($408 million)
branches and automatic teller machines within Chemicals–organic ($357 million)
two years. U.S. insurance firms will be able to U.S. Goods Exports to Singapore (2002):
$16.2 billion
offer full services, including the supply of insur-
Top Exports to Singapore (2002):
ance across the border from the United States. 31 Semiconductors ($2.18 billion)
The agreement guarantees the right of cross- Civilian aircraft ($2.15 billion)
border investors to enjoy secure property rights Computer accessories ($1.32 billion)
and nondiscriminatory treatment. The agreement Industrial machines, other ($765 million)
removes certain performance-related restrictions Electric apparatus ($670 million)
on foreign investment and guarantees the right to Engines–civilian aircraft ($590 million)
repatriate capital and profits. Like the agreement Fuel oil ($570 million)
with Chili, it acknowledges that capital controls Measuring, testing, and control instruments
can be imposed under certain circumstances but ($534 million)
also requires that compensation be paid to injured U.S.-Owned FDI in Singapore (end of 2001):
parties if the controls “substantially impede trans- $27.3 billion
Sales by U.S.-Owned Affiliates in Singapore (2000):
fers” of funds or remain in place for more than
$5.4 billion
364 days. 32 As are those of the FTA with Chile,
such provisions are less than ideal, but they do not
undermine what is in fact an almost total liberal- the agreement.33 This is not a loophole but recog-
ization of capital flows. nition that producers in Singapore have already
One innovative feature of the agreement is a integrated suppliers in Indonesia into their pro-
provision allowing producers in Singapore to duction process. The goods covered by the ISI
source more labor-intensive work to special zones already enter the United States duty-free even
in neighboring Indonesia. That provision, called without the U.S.-Singapore FTA, so no new trade
the Integrated Sourcing Initiative, allows certain privileges are being granted to Indonesia.
finished products and intermediate inputs pro- Allowing Indonesia to contribute to the produc-
duced in the Indonesian islands of Bintan and tion process will help to raise worker productivity
Batam to be exported to the United States as if and overall living standards in that country as well
they were of Singaporean origin for benefits under as in Singapore and the United States.

The U.S. govern- competition into the U.S. domestic market, creat-
ment should resist Next in Line: Australia, ing rather than merely diverting trade and deliv-
domestic political Morocco, Central America, ering the competition and lower prices that are
the principal payoff of trade.
pressure to exclude and Southern Africa Investment and services will be an important
or delay liberal- part of an FTA with Australia. Like Singapore,
In line behind the two completed agreements Australia is not only a major trading partner but
ization of Aus- are negotiations with a dozen other potential FTA also a major investment partner of the United
tralian imports that partners. The Bush administration has begun States. At the end of 2001 U.S. companies owned
negotiations with Australia, Morocco, Bahrain, $34 billion in direct investment in Australia35 and
are most competi- the five members of the Central American U.S.-owned affiliates sold $15 billion of services in
tive in the U.S. Common Market, and the five members of the Australia in 2000.36 An FTA would more secure-
market. Southern African Customs Union. What follows ly protect the rights of U.S. investors to establish a
is a brief analysis of the major opportunities and commercial presence in Australia.
challenges that are likely to arise during the nego- In negotiating an FTA with Australia, the
tiation of the individual agreements.34 U.S. government should resist domestic politi-
cal pressure to exclude or delay liberalization of
Australia Australian imports that are most competitive
Of all the free-trade agreements in the in the U.S. market and hence most politically
pipeline, the one being negotiated with Australia sensitive. The Australian government, for its
is arguably the most economically meaningful. part, should accommodate legitimate concerns
Australia is a major producer of products that are about its sanitary and phytosanitary regime on
protected in the U.S. market, such as beef, sugar, agricultural imports and its government-run
dairy products, and wine. Enactment of a com- Australian Wheat Board, which acts as a cen-
prehensive FTA with Australia would inject real tral market for Australian wheat.

Population (2002): Passenger cars, new, used ($311 million)
19.5 million Steel-making materials ($217 million)
Economy (2001, purchasing power parity): U.S. Goods Exports to Australia (2002):
$466 billion GDP $13.08 billion
$24,000 GDP per capita Top Exports to Australia (2002):
Economic Freedom (1999): Civilian aircraft ($2.66 billion)
8.5 (out of 10.0), ranks 6th Computer accessories ($464 million)
U.S. Services Imports from Australia Pharmaceutical preparations
(2001): ($421 million)
$3.50 billion Telecommunications equipment
U.S. Services Exports to Australia (2001): ($401 million)
$4.70 billion Automotive parts and accessories
U.S. Goods Imports from Australia (2002): ($400 million)
$6.48 billion Excavating machinery ($310 million)
Top Imports from Australia (2002): Industrial machines, other ($303
Meat products ($1.08 billion) million)
Wine and related products ($461 U.S.-Owned FDI in Australia (end of
million) 2001):
U.S. goods returned ($445 million) $34.0 billion
Crude oil ($433 million) Sales by U.S.-Owned Affiliates in Australia
Chemicals–inorganic ($322 (2000):
million) $14.9 billion

Central American Common Market
A free-trade agreement with the five mem- Central American Common Market
bers of the Central American Common Members:
Market would be a logical geographical exten- Costa Rica, El Salvador, Guatemala, Hondu-
sion of the already established North American ras, Nicaragua
Free Trade Agreement. It would open protect- Population (2002):
ed markets to more vigorous competition and 35.1 million
encourage economic reform and stability in Economy (2001, purchasing power parity):
what has been an especially troubled region of $138 billion GDP
the Western Hemisphere. $4,000 GDP per capita
The combined economic output of CACM Economic Freedom (1999):
members is small, less than one-third the size of Costa Rica: 7.8 (out of 10.0), ranks 24th
El Salvador: 7.9 (out of 10.0), ranks 20th
Australia’s GDP. But their two-way trade with
Guatemala: 6.7 (out of 10.0), ranks 56th
the United States is relatively large because of
Honduras: 6.6 (out of 10.0), ranks 60th
proximity and their comparative advantage in Nicaragua: 7.5 (out of 10.0), ranks 34th
products popular in the U.S. market, such as U.S. Services Imports from CACM (2001):
apparel, semiconductors, bananas, and coffee. N/A
An FTA would guarantee access for U.S. Services Exports to CACM (2001):
Central American producers to the otherwise N/A
heavily protected U.S. market for imported U.S. Goods Imports from CACM (2002):
apparel and textiles. Producers in the five $11.9 billion
member countries already send more than $7 Top Imports from CACM (2002):
billion in cotton clothing and textile imports to Apparel, household goods–cotton ($4.95 billion)
the United States.37 Granting those imports Apparel, textiles, nonwool or cotton ($1.93 billion)
Fruits, frozen juices ($1.05 billion)
permanent duty-free access will be politically
Semiconductors ($449 million)
sensitive in the United States, most predictably
Green coffee ($373 million)
with the protectionist textile lobby. Medicinal equipment ($340 million)
Rejecting the agreement because of textile Fish and shellfish ($324 million)
and apparel imports would not serve our U.S. Goods Exports to CACM (2002):
national interest and would be shortsighted for $9.84 billion
the textile industry itself. Textiles are one of the Top Exports to CACM (2002):
major exports from the United States to Apparel, household goods–textile ($1.61 billion)
Central America. In 2002 the top U.S. export Semiconductors ($848 million)
category to the CACM countries was textiles Cotton fiber cloth ($820 million)
for household apparel, and four of the top Finished textile supplies ($352 million)
seven export categories were textiles or cloth.38 Plastic materials ($343 million)
Newsprint ($334 million)
By opening our market to finished apparel
Manmade cloth ($331 million)
from Central America, we would likely be
U.S.-Owned FDI in CACM (end of 2001):
encouraging the export of textiles and other N/A
semifinished inputs from the United States. Sales by U.S.-Owned Affiliates in CACM (2000):
Because of the region’s widespread poverty, N/A
opponents of the FTA will argue that trade will
encourage “sweatshops” and will not adequately
protect environmental and labor standards. Such with good benefits and working conditions. By
arguments ignore ample evidence that trade and refusing to grant market access because of lower
development make higher standards possible. environmental and labor standards, the United
What is considered a “sweatshop” by American States would be depriving poor workers abroad
standards can, to workers in less-developed of one of the most powerful engines for raising
countries, represent relatively good-paying jobs their overall living standards.39

An FTA with An FTA with Central American countries agreement should rapidly eliminate tariffs and
Morocco could would advance important U.S. foreign policy quotas on each country’s goods that are most
goals. During the 1980s the region was torn by competitive in the other’s market. Moroccan
help to build a core war and civil strife stoked in part by communist exports in that category would be fruits such as
of Arab nations insurgents. Today all five members are fledgling clementines and textile and apparel goods.
democracies that have expanded the economic A trade agreement with Morocco could
that would support freedom of their citizens as they have expand- duplicate the success of the U.S.-Jordan Free
trade liberalization ed their political and civil freedoms. A compre- Trade Agreement enacted in 2001. That FTA
and economic hensive free-trade agreement with the United has had a measurable impact on the ability of
States would recognize and reward that Jordanian producers to sell in the U.S. market:
integration with the progress. It would help those nations to reduce Jordan’s exports to the United States jumped
global economy— poverty and strengthen the foundations of free- more than 10-fold from $31 million in 1999 to
and eventually dom and representative government. $412 million in 2002.40 By far the largest cate-
gory of exports has been textile and apparel
create more favor- Morocco goods, a labor-intensive and thus competitive
able conditions for Morocco is not a major U.S. trading partner, industry for many developing countries.41
but it is considered a moderate and pro-reform The FTA has also helped to transform Jordan
political and civil regime within the Arab world. Like the U.S.- into a proponent of free trade and globalization
freedom in the Jordan FTA enacted in 2001, an FTA with among Arab countries. An FTA with Morocco
Muslim world. Morocco would be more of a foreign policy than could help to build a core of Arab nations that
an economic initiative for the United States. would support trade liberalization and economic
Because Morocco’s economy is relatively integration with the global economy—and even-
small, the economic impact of the agreement tually create more favorable conditions for politi-
will be much greater on the North African cal and civil freedom in the Muslim world.
nation than on the United States. To extend After Morocco, the two most likely prospects
the maximum benefit to both countries, any in the Middle East for free-trade agreements are

Population (2002): ($35million)
31.1 million Apparel, textiles, nonwool or cotton
Economy (2001, purchasing power parity): ($34 million)
$112 billion GDP Vegetables ($30 million)
$3,700 GDP per capita Fish and shellfish ($18 million)
Economic Freedom (1999): Fruits, frozen juices ($13 million)
6.2 (out of 10.0), ranks 72nd U.S. Goods Exports to Morocco (2002):
U.S. Services Imports from Morocco $565 million
(2001): Top Exports to Morocco (2002):
N/A Civilian aircraft ($281 million)
U.S. Services Exports to Morocco Corn ($39 million)
(2001): Soybeans ($35 million)
N/A Oilseeds, food oils ($16 million)
U.S. Goods Imports from Morocco Wheat ($11 million)
(2002): Animal feeds ($10 million)
$392 million Engines–civilian aircraft ($10 million)
Top Imports from Morocco (2002): U.S.-Owned FDI in Morocco (end of 2001):
Semiconductors ($96 million) N/A
Sulfur and nonmetallic minerals Sales by U.S.-Owned Affiliates in Morocco
($85 million) (2000):
Apparel, household goods–cotton N/A

Bahrain and Egypt. Bahrain, although small in
size and population, has become a key financial Southern African Customs Union
and petroleum-processing center in the Persian Members:
Gulf. Economic reforms have created the most Botswana, Lesotho, Namibia, South Africa, Swazi-
liberalized economy in the Arab world (ranking land
28th in economic freedom out of 123 countries Population (2002):
worldwide). Compared to Bahrain, Egypt is 50.3 million
much larger in population (71 million vs. Economy (2001, purchasing power parity):
656,000) and in economic output ($258 billion $442 billion GDP
vs. $8.4 billion), but its economy is less liberalized $8,800 GDP per capita
(ranking 52nd in economic freedom). Economic Freedom (1999):
Botswana: 6.9 (out of 10.0), ranks 50th
Namibia: 6.9 (out of 10.0), ranks 50th
Southern African Customs Union South Africa: 7.0 (out of 10.0), ranks 46th
The countries of the Southern African U.S. Services Imports from South Africa (2001):
Customs Union are a rare success story on a $891 million
continent where economic stagnation and U.S. Services Exports to South Africa (2001):
political upheaval are the norm. Per capita $1.22 billion
GDP within the union is far higher than in the U.S. Goods Imports from SACU (2002):
rest of sub-Saharan Africa, and democracy has $4.55 billion
gained a more secure foothold. Top Imports from SACU (2002):
The powerhouse within the SACU is South Precious metals ($1.18 billion)
Africa, which accounts for more than 90 percent of Gem diamonds ($504 million)
the union’s GDP and trade with the United States. Apparel, household goods–cotton ($482 million)
Passenger cars, new, used ($267 million)
An FTA with SACU members would fully open
Steel-making materials ($260 million)
this important African market to U.S. exports of Nonferrous metals, other ($218 million)
goods and services. It would safeguard U.S. direct Automotive parts, accessories ($148 million)
investments, which are already a considerable $3 U.S. Goods Exports to SACU (2002):
billion in South Africa.42 Total two-way trade in $2.63 billion
goods and services between the United States and Top Exports to SACU (2002):
SACU members in 2002 was about $9 billion, Civilian aircraft ($250 million)
comparable to U.S. trade with Chile.43 Passenger cars, new and used ($135 million)
Just as important, an FTA would guarantee Chemicals–organic ($111 million)
SACU producers duty-free access to the U.S. Petroleum products, other ($105 million)
market. One of the many hurdles that have Excavating machinery ($88 million)
confronted Africans is the generally high level Chemicals–other ($72 million)
Plastic materials ($70 million)
of trade barriers in rich countries to those
U.S.-Owned FDI in South Africa (end of 2001):
products—namely textiles, apparel, and agri- $3.0 billion
cultural products—that Africans are compara- Sales by U.S.-Owned Affiliates in South Africa (2000):
tively efficient at producing. N/A
The African Growth and Opportunity Act
passed by Congress in 2000 took a big step toward
reducing those barriers by allowing a number of
products from more than 30 African nations to that access permanent, by extending free trade to
enter the United States duty-free. The early results almost all products and services, and by requiring a
have been promising. For example, textile and reciprocal commitment to liberalization from our
apparel exports to the United States from SACU- African trading partners.
member Lesotho tripled from $100 million in 1998 Like the proposed FTA with Morocco, an
to $321 million in 2002.44 A U.S.-SACU FTA FTA with the SACU countries would have a mod-
would build on the success of AGOA by making est positive impact on the U.S. economy. The real

strength of the agreement would be as a foreign Judged by those criteria, the FTAs proposed
policy initiative that would encourage economic by the Bush administration deserve to be pur-
reform and institutional development in a region of sued. Australia and Singapore both meet the
the world where both have been rare and fragile. first criterion. Australia and Singapore are,
respectively, major suppliers of agricultural and
manufactured goods that, under free trade,
Conclusion would provide real competition in our domestic
economy and large markets for U.S. exporters.
As a tool for expanding freedom and pros- Chile, Morocco, Bahrain, and the five SACU
perity, regional and bilateral free-trade agree- nations, while small in market size, all serve to
ments are useful if less than ideal. They com- one degree or another as examples of economic
plicate the international trading system by and political reform in their regions. A Central
deviating from the most-favored-nation prin- American FTA would be a “twofer,” perma-
ciple of nondiscrimination, and they can blunt nently opening the overly protected U.S. market
the benefits of international trade by diverting to imported apparel and other labor-intensive
it from the most efficient foreign producers to manufactured goods, while further institutional-
those that are favored but less efficient. But izing the historic market and political reforms
If crafted according FTAs can produce compensating benefits by taking root in Central America.
to sound principles, opening domestic markets to fresh competi- Despite their peculiarities and incremental
free-trade agree- tion, encouraging economic liberalization nature, free-trade agreements can serve the
abroad, cementing important foreign policy cause of freedom and development by breaking
ments can serve and security ties, integrating regional down barriers to trade between nations. If craft-
America’s eco- economies, opening markets to U.S. exports, ed according to sound principles, free-trade
and providing healthy institutional competi- agreements can serve America’s economic and
nomic and foreign tion for multilateral negotiations. foreign policy interests.
policy interests. To maximize the economic benefits of free-
trade agreements, the U.S. government should
focus its efforts on negotiations with countries Notes
that provide new opportunities for U.S. exporters
and whose producers would be most likely to 1. White House, Office of the Press Secretary,
“President Bush Presses for Peace in the Middle
enhance competition in our own market. That East,” Remarks by the president in commence-
approach requires that U.S. negotiators not duck ment address at the University of South Carolina,
politically sensitive sectors through long phase-in May 9, 2003,
periods for or exemptions from liberalization. 2003/05/iraq/20030509-11.html.
Instead, they should tout the immediate liberal- 2. For articles and studies on those more general
ization of those sectors as offering the best oppor- trade issues, see previous materials published by the
Cato Institute’s Center for Trade Policy Studies
tunities to reap the benefits of trade. available at
As a broader foreign policy tool, free-trade
3. General Agreement on Tariffs and Trade 1947,
agreements should reward and solidify market Part I, Article I, Section 1,
and political reform abroad. If FTA partners are glish/docs_e/legal_e/gatt47_01_e.htm.
not major export markets or significant produc- 4. Members of a customs union adopt a common
ers of goods that compete in our domestic mar- external trade policy with uniform tariffs applying
ket, they should be moving decisively toward to imports of all members. Members of a free-trade
free markets and representative government. agreement retain independent external trade poli-
cies while eliminating barriers among themselves.
They should be reform leaders in regions of the
world where models of successful reform are 5. General Agreement on Tariffs and Trade 1947,
most needed. In this way, free-trade agreements Part III, Article XXIV, Section 4.
can serve as carrots to encourage the spread of 6. Ibid., Part III, Article XXIV, Section 5 (a) and (b).
political and economic freedom abroad. 7. Ibid., Part III, Article XXIV, Section 8(a)i.

8. Ibid., Part III, Article XXIV, Section 5(c).
9. Ibid., Part III, Article XXIV, Section 10. 23. USTR, “Chile Free Trade Agreement: Final Texts,”
10. World Trade Organization, “Regional Trade Article 10.8 (3).
Agreements: Facts and Figures,” 24. Ibid., Chapter 10, Annex 10-C 1.(e).
lish/tratop_e/ region_e/reg fac_e.htm.
25. Robert Krol, “The Case for Open Capital
11. Organization for Economic Cooperation and Markets,” Cato Institute Trade Briefing Paper no.
Development, “Regional Trade Agreements and the 11, March 15, 2001.
Multilateral Trading System,” November 20, 2002, p. 12.
26. USTR, “Chile Free Trade Agreement,” Article 18.2.
12. Jacob Viner, The Customs Union Issue (New York: 27. Ibid., Article 19.2.
Carnegie Endowment for International Peace, 1950).
28. For an analysis of the link between trade and labor
13. Ibid., p. 135.
and environmental standards, see Daniel T. Griswold,
14. For a favorable assessment of free-trade agreements, “Trade, Labor, and the Environment: How Blue and
see Robert Z. Lawrence, “Emerging Regional Green Sanctions Undermine Higher Standards,” Cato
Arrangements: Building Blocks or Stumbling Blocks?” Institute Trade Policy Analysis no. 18, August 2, 2001.
in International Political Economy: Perspectives on Global
29. USTR, “Singapore Free Trade Agreement: Final
Power and Wealth, ed. Jeffry A. Frieden and David A.
Text of Free Trade Agreement,” Annex 2B: General
Lake, 3d ed. (New York: Routledge, 1995), pp. 407–15;
and Lawrence H. Summers, “Regionalism and the
World Trading System,” in Trading Blocs: Alternative 30. Ibid., Annex 2C 3.
Approaches to Analyzing Preferential Trade Agreements, 31. Ibid., Annex 3B.
ed. Jagdish Bhagwati, Pravin Krishna, and Arvind
Panagariya (Cambridge, Mass.: MIT Press, 1999), pp. 32. U.S. Department of the Treasury, “Fact Sheet:
561–66. For a negative assessment, see Jagdish Agreement on US-Singapore Free Transfers,” January 15,
Bhagwati and Arvind Panagariya, The Economics of 2003, reports/kd37661.doc.
Preferential Trade Agreements (Washington: AEI Press, 33. USTR, “Singapore Free Trade Agreement,” Annex 3B.
1996), especially pp. 1–78.
34. Material in boxes is from U.S. Central
15. National Association of Manufacturers, “Absence Intelligence Agency; Gwartney and Lawson; and
of Chilean Trade Agreement Costing U.S. over $1 U.S. Department of Commerce.
Billion per Year,” Washington, February 4, 2003, 35. Elena L. Nguyen, “The International Investment
EOFCHILEANTRADEAGREEMENT.pdf. Position of the United States at Yearend 2001,” Survey
of Current Business, July 2002, Table 2.2, p. 33.
16. Material in boxes is from U.S. Central Intelligence
Agency, 2003 Factbook; James Gwartney and Robert 36. Maria Borga and Michael Mann, “U.S.
Lawson, Economic Freedom of the World: Annual Report International Services: Cross-Border Trade in 2001
2001 (Vancouver, B.C.: Fraser Institute, 2001); and and Sales through Affiliates in 2000,” Survey of
U.S. Department of Commerce. Current Business, October 2002, Table 8, p. 120.
17. Gwartney and Lawson, p. 144. 37. U.S. Bureau of the Census, “End-Use: 5-Years of
Imports and Exports by 5-Digit End-Use Code,”
18. International Monetary Fund, International
Financial Statistics Yearbook 2001 (Washington: product/enduse/index.html, accessed May 20, 2003.
IMF, 2001), p. 169.
38. Ibid.
19. Andres Oppenheimer, “Chile Looks to Become
the ‘Ireland of the Americas,’ ” Miami Herald, 39. See Griswold, pp. 7–8.
December 22, 2002. 40. U.S. Bureau of the Census, “Trade Balance by
20. Office of U.S. Trade Representative (USTR), Country,”
2003 Trade Policy Agenda and 2002 Annual Report of country/index.html, accessed May 20, 2003.
the President of the United States on the Trade 41. U.S. Bureau of the Census, “End-Use.”
Agreements Program, March 1, 2003, p. 137.
42. Nguyen, Table 2.2, p. 33.
21. USTR, “Chile Free Trade Agreement: Final Texts,”
Released April 3, 2003, Section 3, U.S. Headnotes, 43. Borga and Mann; and U.S. Bureau of the Census, “FT900—U.S. International Trade in
Goods and Services,” December 2002, Supplemen-
22. Coalition of Service Industries, “Service tal Exhibit 6,
Industries Coalition Calls Chile US Trade PressRelease/2002pr/12/exh6s.pdf.
Agreement a ‘Milestone,’ Very Good Deal for Both
Countries,” Press release, December 11, 2002, 44. U.S. Bureau of the Census, “End Use.”

James K. Glassman
American Enterprise
Institute T he mission of the Cato Institute’s Center for Trade Policy Studies is to increase public
understanding of the benefits of free trade and the costs of protectionism. The center
publishes briefing papers, policy analyses, and books and hosts frequent policy forums and
Douglas A. Irwin conferences on the full range of trade policy issues.
Dartmouth College Scholars at the Cato trade policy center recognize that open markets mean wider choices
and lower prices for businesses and consumers, as well as more vigorous competition that
Lawrence Kudlow encourages greater productivity and innovation. Those benefits are available to any country
Schroder & Company that adopts free trade policies; they are not contingent upon “fair trade” or a “level playing
Inc. field” in other countries. Moreover, the case for free trade goes beyond economic efficiency.
The freedom to trade is a basic human liberty, and its exercise across political borders unites
William H. Lash III people in peaceful cooperation and mutual prosperity.
George Mason University
The center is part of the Cato Institute, an independent policy research organization in
School of Law
Washington, D.C. The Cato Institute pursues a broad-based research program rooted in the
José Piñera traditional American principles of individual liberty and limited government.
International Center for
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London School of Other Trade Studies from the Cato Institute

George P. Shultz
“Ending the ‘Chicken War’: The Case for Abolishing the 25 Percent Truck Tariff” by Dan
Hoover Institution
Ikenson, Trade Briefing Paper no. 17 (June 18, 2003)
“Grounds for Complaint? Understanding the ‘Coffee Crisis’” by Brink Lindsey, Trade
Walter B. Wriston Briefing Paper no. 16 (May 6, 2003)
Former Chairman and
CEO, Citicorp/Citibank
“Whither the WTO? A Progress Report on the Doha Round” by Razeen Sally, Trade
Policy Analysis no. 23 (March 3, 2003)
Clayton Yeutter
Former U.S. Trade
“Free Trade, Free Markets: Rating the 107th Congress” by Daniel T. Griswold, Trade Policy
Analysis no. 22 (January 30, 2003)

“Reforming the Antidumping Agreement: A Road Map for WTO Negotiations” by Brink
Lindsey and Dan Ikenson, Trade Policy Analysis no. 21 (December 11, 2002)

“Antidumping 101: The Devilish Details of ‘Unfair Trade’ Law” by Brink Lindsey and Dan
Ikenson, Trade Policy Analysis no. 20 (November 21, 2002)

“Willing Workers: Fixing the Problem of Illegal Mexican Migration to the United States”
by Daniel T. Griswold, Trade Policy Analysis no. 19 (October 15, 2002)

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