Thursday, December 27, 2007

Free Trade Versus Managed Trade

I like this article that explains the difference between free trade and managed trade. Couple quotes:
In establishing a free economic system for the United States, the Framers mandated free trade among all the states in the union. They spelled this out in Article I, Section 9, of the Constitution:
No tax or duty shall be laid on articles exported from any state. No preference shall be given by any regulation of commerce or revenue to the ports of one State over those of another: nor shall vessels bound to, or from, one State, be obliged to enter, clear, or pay duties in another.
At 54 words, this was the original North American Free Trade Agreement. As we shall see, the 1994 agreement that goes by that name makes a travesty of free trade.
The North American Free Trade Agreement (NAFTA) is the quintessential managed-trade vehicle sold under the rubric of free trade. The first tip-off should be its size. While we earlier saw how 54 words in the U.S. Constitution established free trade among the states of the Union, NAFTA weighs in at over 2,000 pages, 900 of which are tariff rates. (Under true free trade, there is one tariff rate—0 percent.) The agreement does have trade-liberalizing features, to be sure. Consisting of a 10 percent reduction in tariffs to be phased in over 15 years, however, they are all but buried under the profusion of controls NAFTA also establishes.
and finally
The crowning jewel of managed trade is the World Trade Organization. Instituted to replace GATT, its 29,000-page treaty is a bureaucrat’s dream come true. Its driving force comes from those who see government’s job as civilizing the market (which they believe would otherwise operate as the law of the jungle). While those 29,000 pages say little about deregulating trade, they say a great deal about regulating everything else. Whereas GATT had been a voluntary forum for nations seeking mutual agreements to lower tariffs, the WTO has enforcement powers, with trade sanctions chief among them.
Thanks to Vijay for pointing me to the article.

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