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Politics : Politics for Pros- moderated
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From: LindyBill4/7/2007 10:12:49 AM
   of 793670
 
Why are free trade agreements "contagious"?
MARGINAL REVOLUTION BLOG
By Tyler Cowen on Political Science

In Venice I read how the Japanese are concerned about the U.S.-South Korea free trade agreement, and might seek their own trade deal with the United States. The Japanese are afraid of being "left out in the cold." I've also read speculation that a South Korean trade agreement might make Congress look more favorably upon free trade agreements with Latin America. So why might one free trade agreement lead to others? I can think of a few hypotheses:

1. Free trade agreements lead to considerable amounts of trade diversion, not just more trade. The "left out" countries fear that trade diversion and thus wish to cut their own bilateral deals.

2. Free trade agreements show that other governments have found a commitment to greater trade worthwhile. This may signal that either that benefits of trade are especially high, or that anti-trade interest groups are especially weak.

3. There is a big copycat effect in politics and public opinion, as evidenced by the historical clustering of revolutions and reforms.

4. A bilateral free trade agreement means that the U.S. will regard South Korea as a closer political ally than before, and Japan (and others) wish to keep in step. In particular Japan wishes to keep "first dibs" on U.S. military protection and be the "go-to" country in international fora and joint endeavors.

What have I left out?

Note that under #1, bilateral trade agreements might lead to inefficient trade diversion, but the resulting spread of trade agreements will reverse many of those costs.

Here is John Nye on the historical tendency of free trade agreements to prove contagious. Here is Mark Thoma on trade diversion.

The bottom line: I haven't read the details of the U.S.-South Korea agreement, but I suspect that in this setting even a highly imperfect trade agreement is a net plus. marginalrevolution.com
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