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Trade Agreements or Political Independence: A False Choice

A new international trade agreement has hit a stumbling block. Against the background of a decades long deadlock of the WTO negotiations, and the controversies surrounding the more recent Trans-Pacific Partnership, the Walloon region in Belgium has decided to ‘veto’ the CETA (Comprehensive Economic and Trade Agreement) between EU and Canada. As any decisions regarding the European Common Market require a unanimous vote of regional representatives, this veto appears insurmountable.

These recent events have raised significant concerns about the future of free trade talks. In fact, the past year has seen a rise in the anti-trade rhetoric across the globe, rhetoric often capitalized on by varying political candidates. Before drawing any conclusions, however, we should pay more attention to the many different facets of these controversies.

On the one hand, it’s always worth remembering that intergovernmental trade agreements are not equivalent to free trade, and in fact are purported to bring about a reduction in the ease of trade and an increase in costs favorable to some particularly well-connected interest groups to the detriment of consumers. This is why trade agreements, bilateral or multilateral, take so long to be negotiated and ratified, as they demand political maneuvering and reciprocal concessions to satisfy the conflicting interests of different industrial and agricultural lobbies. That they parade themselves as defenders of the old free trade ideals is indeed their foremost accomplishment.

 Mises himself was partial to such efforts in the first half of the 20th century, around the time when he was employed at the Chamber of Commerce in Vienna. As Dr. Hűlsmann explains:  

“Mises was reluctant to become involved in any organized political campaign…This attitude changed over the next couple of years, as he enjoyed the early successes of the European free-trade movement. But his original apprehensions proved correct and his involvement, while intense and high profile, was also short-lived. Among his international associates in the movement, he saw political maneuvering, nepotism, and other forms of questionable behavior at the expense of the free-trade cause… Disillusioned with the official free-trade movement, Mises returned his focus to the battle of ideas” (Hűlsmann 2007, 581-82).

However, the Walloons protested and (for now) blocked CETA—rumored to bring about a decrease in tariffs between EU and Canada allowing for cheaper Canadian imports to enter the European market—motivated by the old economic fallacy of protecting national producers. That European customers are not better informed to demand a reduction of trade barriers on principle and to acknowledge the benefits of trade for either party is definitely regrettable.

On the other hand, Belgium has only exercised its democratic prerogative within the EU, and Wallonia within Belgium, much like Britain did a few months ago when voting to leave the European Union. And much like after Brexit, the recent decision by Belgium was met with cries of dismay and with various calls for impeachment. Some commentators have even argued that “perhaps the European Union’s problem is too much democracy rather than too little.” A mere vote on trade thus became a much more important vote on legitimacy of EU rule—and here, the resistance of Belgians could be seen in a more favorable light.

Less debatable is the fact that free trade can spread and last only if it arises from the bottom up, by public demand as it were. No top down government intervention, even assuming it can ever be ‘well-intentioned’, can accomplish anything worthwhile in promoting its cause. In fact, once such trade deals are imposed and met with resistance, they do significant damage more to the original idea of free trade, and not to that of government intervention: First, on principle, breaching the necessary voluntary character of such partnerships, and second, because since they are not truly free trade agreements, they bring about mixed economic results which are later on blamed on the very absence of tariffs and regulations. A similar phenomenon occurs when economic crises are blamed on financial deregulation. It is thus in the interest of both industry and consumers that the government be left out of any future Canadian-European trade partnerships, even—or more so—when governments appear to be working in favor of consumers. Any instance in which the government is allowed to contract for, or be part of contracts among consumers and businesses opens the door to a myriad of future interventions.

This rejection of CETA, even if just temporary, is a thoroughly bittersweet affair. One wishes that consumers would once in a blue moon rally in support of foreign products, or fight against the resurrection of old mercantilistic ideas. At the same time, any small attempt to disassociate from one’s national government—or supranational government—should nevertheless be welcome. And in an ideal world, there would be no trade-off between trade deals and political independence.

Carmen Dorobăț has a PhD in economics from the University of Angers, and is assistant professor in International Business at Coventry University. Contact: email.


Contact Carmen Elena Dorobăț

Dr. Carmen Elena Dorobăț is a Fellow of the Mises Institute and Senior Lecturer (Associate Professor) at Manchester Metropolitan Business School in the United Kingdom. 

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