What Do Trade Agreements Really Do?

Abstract

Economists have a tendency to associate “free trade agreements” all too closely with “free trade.” They may be unaware of some of the new (and often problematic) beyond-the-boarder features of current trade agreements. As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization— intellectual property, health and safety rules, labor standards, investment measures, investor–state dispute settlement procedures, and others—they have become harder to fit into received economic theory. It is possible that rather than neutralizing the protectionists, trade agreements may empower a different set of rent-seeking interests and politically well-connected firms—international banks, pharmaceutical companies, and multinational firms. Trade agreements could still result in freer, mutually beneficial trade, through exchange of market access. They could result in the global upgrading of regulations and standards, for labor, say, or the environment. But they could also produce purely redistributive outcomes under the guise of “freer trade.” As trade agreements become less about tariffs and nontariff barriers at the border and more about domestic rules and regulations, economists might do well to worry more about the latter possibility.