Dr. Khalil Ahmad on semantics aren’t FTAs only challenge – there’s a ways to go before trade is truly free

There are many opportunities and challenges to be found within Regional Free Trade Areas. Various issues highlight points of Free Trade Agreements that negate the very concept of Free Trade. Indeed, governments do not need any agreement to promote free trade; that is a contradiction in terms. Trade agreements are reached between trading parties, not between governments. In order to further explain this case, the South Asian Free Trade Area (SAFTA ) agreement’s text will be used as a test case. This agreement was reached between Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka in January 2004.

Free trade means freedom to trade. Naturally, everyone is free to enter an agreement with anyone in a voluntary manner to sell or purchase anything, no matter where they happen to live or be located. While one cannot be restricted to transact with this or that person only, it is the case under some Free Trade Agreements (FTA s). No doubt, it is merely political boundaries which have divided this world into various regions and countries and withdrawn this freedom from people by force.

However, the fact is that free trade can flourish and bring benefits to all trading parties without disturbing these boundaries. It is necessary to not only change our perception, but to consider this world of ours as it is – one big market – and not compartmentalize markets which only serve special interests, ignoring the rest.

The world is one big market.

In recent years free trade agreements have become fashionable. Thus, when two or more countries reach an agreement to allow free trade (the semantics of FTA s are incorrect because it is the country which, in the first instance, imposed restrictions on free trade), it is publicized as a Free Trade Agreement. This is both misleading and ridiculous. In reality, “free” trade is not being allowed between the contracting countries since there are more “strings” attached here than natural freedom allows.

Upon taking a cursory look at the text of SAFTA , it is clear that many clauses nullify the spirit of free trade.

Article 3, “objectives” clause b reads: “promoting conditions of fair competition in the free trade area, and ensuring equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development;”

Article 3, “principles” clause c reads: “SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems;”

Article 3, clause f reads: “The special needs of the Least Developed Contracting States shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis.”

Article 14, “General Exceptions” deals the final blow. Its two clauses read:

“a) Nothing in this Agreement shall be construed to prevent any Contracting State from taking action and adopting measures which it considers necessary for the protection of its national security.

b) Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the similar conditions prevail, or a disguised restriction on intraregional trade, nothing in this Agreement shall be construed to prevent any Contracting State from taking action and adopting measures which it considers necessary for the protection of:

(i) public morals; (ii) human, animal or plant life and health; and (iii) articles of artistic, historic and archaeological value.”

Article 15, “Balance of Payments Measures” clause 1 reads:

“Notwithstanding the provisions of this Agreement, any Contracting State facing serious balance of payments difficulties may suspend provisionally the concessions extended under this Agreement.”

In article 16, its 7 clauses provide for “Safeguard Measures.”

In the final analysis, these articles and clauses (and others not cited here) may not seem as safeguarding interests, but in practice allows for doing anything on the part of contracting states as regards implementation of the agreement. Of course, there are limits, such as what is not provided for in the agreement cannot be implemented; on the other hand, the implementation of whatever has been provided for in the agreement can always be delayed, obstructed, or manipulated.

These practices don’t free trade, they enslave it. For instance, the contracting states can institute measures to protect their domestic interests from foreign competition in the form of tariffs, negative or sensitive lists, exemptions, quotas, and subsidies. All the while, it is these very measures which are considered inimical to the promotion of free trade.

Thus, under such agreements, it remains in the hands of a state to determine how much freedom it is willing to extend. Or it remains with the state to decide what to import or export, from whom to whom, and how and under what conditions. This is far from free.

There are other items in this agreement which serve to strengthen the contracting states’ tendency towards protectionism, such as gradual reduction (or reduction under specified conditions) of tariff rates for those items on Sensitive Lists. These sensitive or negative lists define the domestic products that are particularly susceptible to competition and implement measures to safeguard the products such as tariffs or exemptions. These socalled free trade agreements allow for a restricted freedom to trade, in other words, all but free trade. They cannot achieve what free trade, in fact, offers.

As to the tag of “Regional” attached to the free trade agreements, it is yet another restriction, similar to restricting one’s movement within a specified area. Thus, regional free trade agreements allow trading with contracting countries only, and under definite restrictions.

In simple terms, the model here can be defined: Any one state (S1) orders or restricts another to sell or purchase with others (X, Y, and Z) under conditions already decided upon and imposed by S1. The argument is that this setup is not free trade, but on the other hand, at least these circumstances allow the freedom to transact with X, Y, and Z under some specified conditions if not with A, B, and C and on our own conditions.

What is important here is the spirit with which the government of a country implements the agreement. Thus, if conceived and implemented in good faith, Regional Free Trade Agreements may be the first step in the right direction. They allow something of freedom to trade rather than having no freedom at all.

Challenges remain to expand a true free trade to this model of restricted “free” trade, but even a small step in the right direction is a step forward.

Khalil Ahmad is the founder and head of the think tank Alternate Solutions Institute in Pakistan, http://asinstitute.org

They allow something of freedom to trade rather than having no freedom at all.