Expanding And Liberalizing Trade With Europe: A Must For The Free World

Por Alejandro Chafuen: Publicado el 13/6/2015 en: http://www.forbes.com/sites/alejandrochafuen/2013/06/13/expanding-and-liberalizing-trade-with-europe-a-must-for-the-free-world/


Several articles have been written about the economic benefits of increased trade and investment between Europe and the United States. The economic advantages are relevant. The potential impact on the institutions of the free society is even more important.

When one looks at the indicators of corruption and respect for rule of law, the United States and Western Europe, despite their problems, score much better than the rest of the world. When we look at rates of economic growth the picture is different. During these past 5 years, the U.S. and the EU are growing much slower than other regions of the world.

Countries which score much worse in most governance indicators, such as the BRICS (Brazil, Russia, India, China and South Africa), are growing, on average, at twice the rate of Europe and the U.S. In addition, several Latin American countries with dismal respect for the rule of law are also growing much faster than the U.S. and EU. Those of us trained in economics pay attention to the role of incentives in all areas of life. Politics is no exception. If leaders believe that rule of law leads to less economic growth than rule by interests or privilege, there is a bigger chance that they will choose the latter.
Enhancing economic development in Europe and the United States, where civil societies have not given up their efforts to live under equality before the law, is essential. Increased trade is one of the few drivers of growth which might garner enough support for speedy implementation. Massive deregulation, tax reductions and simplifications can also work wonders. The climate of opinion, and the push of special interests tied to the government, unfortunately, might prevent such libertarian policy changes in the near future.

Two European organizations are actively promoting the Transatlantic Trade and Investment Partnership (TTIP). FAES, the Spanish think tank founded by former Prime Minister José María Aznar, is one of them. The former executive director of FAES, Jaime García Legáz, is the current Deputy Minister for Trade in the Spanish government and is an active supporter of free trade. García Legáz co-authored TAFTA The Case For An Open Transatlantic Free Trade Area. This proposal goes beyond the official TTIP effort and calls for establishing a free trade area between Europe and the United States. At a recent launching of the book Aznar argued that “a free trade agreement would boost the Atlantic basin: it would add dynamism to our economies, boost growth and jobs, strengthen our geostrategic position and renew the foundations of the Atlantic relationship, which is not exhausted, but instead comprises an extraordinary potential for prosperity.” Aznar has always been convinced that there is no opposition between freedom and prosperity. Free trade enables economic growth, the expansion of the middle classes and, as a consequence, it helps sustain the economic safety nets which have become so strained during these years of crisis.

García-Legaz added that “the economies of Europe and the United States account for 50 percent of the global GDP, so that the free trade agreement between the two would be the most far-reaching one that you can sign today.”   According to his calculations “it would generate an annual increase in EU GDP of 0.5 percent and gains of 86 billion euros for the EU as a whole.”  Elimination of all tariffs and non-tariff barriers could lead to a doubling of those benefits, but such radical reform is unrealistic.

The Friedrich Naumann Foundation for Freedom, the non-profit educational think tank of the Free Democratic Party in Germany, has also been active promoting TTIP.  They brought some of their heavy hitters to Washington D.C., to meet with think tanks and policy leaders.  Among them, Anne Ruth Herkes, Deputy Minister at the German Federal Ministry of Economics and Technology and coordinator of TTIP negotiations.   During a meeting with the CEOs of Hudson Institute, Americans for Tax Reform and others, she described the strong links that exist between Germany, the EU and the U.S.— 50% of Germany’s GDP and 1 out of 4 jobs depend on foreign trade and the U.S. is its largest trade partner outside the EU.

Both FNF and FAES have an extensive network of friendly think tanks in the Americas.  FNF has RELIAL, a Latin American think tank network, under its umbrella.  Through training programs, scholarships, and joint efforts, FAES has been a leader in helping mobilize think tanks in the region.  As several countries have free trade agreements with the U.S., including Mexico, Chile, and Colombia, and many others are big trading partners, it is essential to take them into account in this EU-U.S. negotiation.  President Aznar was explicit: “The transatlantic relationship cannot rest on the North Atlantic only,” it “must include Latin America.”  FAES is also a major player within theEuropean Ideas Network, an important regional force, and together with FNF and other German foundations can help attract international support for TTIP.

What role will U.S. think tanks play?  In order to help approve the North American Free Trade Agreement (NAFTA), the Fraser Institute in Canada created a network of think tanks.   Fraser supplied the network with a variety of books, one-pagers and editorials about trade.  The most relevant material was translated into Spanish.   Michael Walker, then director of Fraser, remarked “we sought to promote the agreement in all three countries.”  Only a few free-market think tanks, such as the Competitive Enterprise Institute, opposed NAFTA for not being libertarian enough.  Fraser’s network was strategic and successful.

No such concerted effort by U.S. think tanks in support of TTIP or TAFTA exists today.  “Tea Party” followers tend to be the more skeptical voters when dealing with international free trade.  U.S. think tanks with donor bases that overlap with that of Tea Party groups, like The Heritage Foundation, are waiting for the fine-print before taking a stance on TTIP.  Their challenge is to show that better access to foreign markets is only part of the story.  It is easier for economists than voters to understand that a major benefit of these pacts come from reducing our own barriers to trade rather than increasing exports.

These agreements tend to have more components of “managed” rather than “free” trade, and it is always easy to find weaknesses in them.  Some of the additional challenges for the approval of TTIP include: getting labor unions to talk to each other; helping counter anti-German and anti-U.S. sentiment (poised to be the biggest winners); paying attention to the economic needs of the U.S. South, which is gaining in economic clout; and preserving freedoms in the financial world to win allies in the U.K.

If the area of the world that has more respect for rule of law does not find a way to grow faster, more countries will move to models based on cronyism.  Freer and increased trade is one of the few things that can help accelerate growth in the Transatlantic North.   The benefits will be felt beyond economics and beyond their borders.


Alejandro A. Chafuén es Dr. En Economía por el International College de California. Licenciado en Economía, (UCA), es miembro del comité de consejeros para The Center for Vision & Values, fideicomisario del Grove City College, y presidente de la Atlas Economic Research Foundation. Se ha desempeñado como fideicomisario del Fraser Institute desde 1991. Fue profesor de ESEADE.