NAFTA has harmed the Cause of Free Trade

From Professor Arvind Panagariya

Sir, You are to be congratu­lated for returning, in your editorial "Priorities in world trade" (April 28), the issue of global, multilateral trade liberalization to centre stage and for issuing a clear warning against new preferential trading arrangements, involving huge' shares of world trade, as between large trading countries such as the US and EU and ,between the US and Pacific nations.

But you are much too soft on the preferential regional arrangements concluded recently. You seem to accept too readily the conclusion in the recent World Trade Organi­sation report that these agree­ments have been "complemen­tary" to multilateral liberalisation ("WTO's blessing for trade groups", April 27). Surely, this conclusion is unwarranted.

Of course, all such arrange­ments are not to be condemned: the EU, which aims at a common market and has a strong Justification therefore, can be considered a positive force. But, by the same token, not all trading arrangements, especially those which are free trade areas, can be condoned. Specifically, the case for the North American Free Trade Agreement has been grossly overstated and one can argue convincingly that Nafta has harmed the cause of global free trade.

Consider just two of many arguments. Mexico's nondiscriminatory liberalisation acquired great momentum in the 1980s. By encouraging the false view that a free trade area could be equated with free trade, Nafta proponents reduced the incentive for Mexico to push more actively for non-discriminatory cuts in its trade barriers.

More importantly, Nafta has done a great disservice to the global trading system by turn­ing the labour and environmental issues into more effective global trade demands. The taste of victory on these issues in the Nafta supplemental agreements, made possible by former President Salinas's capitulation in an uneven one-on-one bargain with an eco­nomic superpower in this essentially bilateral context, has encouraged the environmental and labour lobbies in the US to seek concessions on these questions on a global scale and to put pressure on the US administration to use its muscle on their behalf.

By diverting the WTO's attention from pressing issues of further trade liberalisation to these environmental and labour demands - which can be counted upon instead to cre­ate new and unjustifiable obstacles to market access - and also by encouraging other countries to seek discrimina­tory access to large countries' markets, Nafta can be judged actually to have harmed the cause of multilateral free trade.

Financial Times, May 10 1995