In international trade, all countries strive to reach a contradictory goal. They would like to foster their exports in order to maximize income and profits for their business and industry and earn foreign exchange to strengthen their economy, while at the same time impose restrictions and tariffs to prevent other countries from exporting to them.
Free trade negotiations try to merge these two interests. Each country’s ideal foreign trade policy would be to have unrestricted access to foreign markets for their goods, and impose restrictions on goods from other countries so that they only import what they need and do not import products that will compete in their domestic market. This is, of course, completely impossible as all countries try to achieve this same end.
Free trade negotiations are a result of this give and take between nations as they try to maximize exports and minimize imports. Free trade negotiations between nations occur on a global scale around the year, and free trade agreements have been established between trading nations to achieve some compromises in this arena.
The United States is party to the North American Free Trade Association (NAFTA), the Central American Free Trade Association (CAFTA) and the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO) as well as other smaller free trade agreements and organizations. At these organizations, United States trade representatives meet routinely with the representatives of other nations to hammer out the details of how they will trade with one another. Promoters of international trade agreements usually include large corporations who want unrestricted access to as many markets as possible, but have to prove to the domestic public that jobs will not be lost and individuals suffer.
NAFTA, for example, when it was formed in 1994 “promised it would create hundreds of thousands of new high-wage U.S. jobs, raise living standards in the U.S., Mexico and Canada, improve environmental conditions and transform Mexico from a poor developing country into a booming new market for U.S. exports.” (Public Citizen-Global Trade Watch).
Countries use tariffs, quotas, subsidies, import regulations, laws, legislation and regulatory measures as well as restrictions on capital flows and investment in order to control the flow of goods across their borders or protect industries threatened by global trade. Free trade negotiations involve concessions in some of these areas in order to achieve a balance and arrive at fair agreements. Here is an example of free trade negotiations at work. In 2005, the European Union has a maximum ceiling of $19.1billion and the United States a maximum ceiling of $75billion to spend on farm subsidies to protect their agricultural industries. (Subsidies to farmers lead to excess crops, pushing prices down, creating a disadvantage for farmers in other countries. The European Union and Japan, who both subsidize their farmers have opposed a U.S. plan requiring them to cut that aid.) As part of the Doha trade negotiations in October, 2005, the United States offered to lower their ceiling by 60% if the European Union cut theirs by 80%. (The Economist October 15, 2005.) Of course, further rounds of negotiations will take place and a compromise will be agreed upon, as each nation tries to give as little as possible and get as much as possible to protect its interests.