Project Background



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What exactly is Free Trade?

Free Trade promotes the flow of goods, services and capital between countries with the goal of achieving economic growth. These goals are realized by reducing tariff and non-tariff trade barriers and by creating a set of rules that are common and enforceable between all member nations.

Free trade regimes and agreements, such as the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO) as well as the North American Free Trade Agreement (NAFTA) create a set of rules and regulations which governs trade between its member countries. These agreements have formed the case studies of our analysis in order to make recommendations for the upcoming Free Trade Area of the Americas (FTAA).


What are the major problems with free trade?

As was mentioned, free trade is a set of rules and regulations that pertain to the economic sphere. However, in carrying out trade, effects are felt on other areas than just economics. This occurs when the non-tariff trade barriers that free trade attempts to eliminate are measures created by governments to address public interest issues.

A case that was raised under NAFTA's investment Chapter illustrates this conflict. In March 1999, the California government invoked the precautionary principle in ruling to completely phase out a gasoline additive that was contaminating waterways and potentially endangering the environment and human health. The Canadian company Methanex that produces the additive methyl tertiary butyl ether (MTBE), has claimed a loss of profits due to the ban and is seeking compensation from the United States government.

Environmental protection provisions are classic examples because they often seek to limit the production or consumption of hazardous goods. When the trade dispute is brought before a dispute panel, exceptions written into the trade agreements to deal with these issues have tended to be narrowly interpreted with a bias towards trade. This brings us to the focus of our analysis.


Dispute Resolution Mechanisms (DRMs):

We have chosen to focus on DRMs for three reasons. First, they are the bodies that (often narrowly) interpret and apply the rules and regulations of free trade regimes.

Second, DRMs hold an important position in trade regimes because their decisions on trade conflicts are binding. They can permit countries to impose trade sanctions on other nations that persistently refuse to obey a panel's decision. DRMs are a reasonably direct avenue to improving the relationship between trade other fields like the environment.

Third, DRMs show much room for improvement. As mentioned, they have been known for their narrow interpretations of agreement language as well as a disregard for the non-trade areas of expertise. One of the key ways that we identified that they can be improved is through increased public participation in the process.