Free Trade: It Takes Two

Free trade is busting out all over, or at least the idea is. Debate over the U.S.-Canada Free Trade Agreement has ignited interest in Washington in bilateral trade agreements with other nations.

By eliminating almost all trade barriers between the two countries, the U.S.-Canada pact will lead to a $25-billion increase in trading volume over five years, the Commerce Department estimates. This increased trade could raise U.S. GNP by up to $45 billion, or about 1 percent, projects the Institute for International Economics, a Washington-based research group. That averages out to $740 for a family of four. The Commerce Department estimates that increased trade will create more than 14,000 new jobs in U.S. exporting industries alone; Canada's Ministry of Finance foresees some 120,000 total new jobs in that country, where GNP may rise by 2–5 percent.

Impressed by all this good news, U.S. lawmakers have begun to discuss similar agreements with other nations. The Senate Finance Committee recently asked the International Trade Commission to study the effects of a free-trade agreement with Japan. The Republican platform calls for a pact with Japan, as well as agreements with Taiwan and South Korea. Some western congressmen are even talking of creating a North American free-trade zone by striking a free-trade deal with Mexico.

Bilateral agreements are a dramatic change in the government's approach to international trade. For the last 40 years, most trade negotiations have taken place under the auspices of the General Agreement on Tariffs and Trade (GATT), a multilateral treaty that seeks to reduce trade barriers among nations.

"But in the last decade, people have become frustrated with the GATT approach, where you can move ahead only if everyone else does," says Jerome Ellig, an economist with Citizens for a Sound Economy. "Bilateral negotiations overcome this problem. "

Currently, Israel is the only country besides Canada to have negotiated a free-trade pact with the United States. Although interest in more deals is high, Ellig warns that "negotiating the agreement with Canada took years. It'll be a long time before there's any more legislation."