A new free-trade alliance

In a recent Labour Day address, US President George Bush spoke of dismantling all trade barriers with free economies as a means of creating jobs for Americans.

While the speech was no doubt devised as a contrast to the rather protectionist tenor of challenger John Kerry's campaign, it clearly echoed an exciting new proposal by the Heritage Foundation for a global free-trade alliance.

This influential Washington think tank has invited US congressmen to give completely free access to American markets to producers and investors who come from free economies, as long as these countries reciprocate. An alliance of willing free traders would then emerge - without much bureaucratic and administrative fuss, without the delays and the foul compromises of negotiated liberalisation deals, and without the loss of political capital that negotiations and their ratification so often inflict. The alliance of free economies is meant to supplement conventional bilateral and multilateral negotiations, such as those under the World Trade Organisation.

According to the Heritage Foundation, 11 countries already qualify for unhindered trade and investment access to the US, including Australia. Another 18 come close to the mark. Their governments can be expected to remove those few domestic regulations, limits to secure property rights or border controls that still stand in the way of alliance membership.

The alliance will change the entire ball game of liberalisation. Instead of reluctant diplomatic haggling over concessions to foreign interests, the alliance is based on the norm that trade and investment between individual people and firms should be free. The burden of proof is shifted from those who wish to do away with border controls to those who wish to stand between the free citizens of different countries. The international economic order will again be shaped more by numerous market decisions, and not the visible hand of politicians, trade diplomats and lobbyists. The growth game of trade and investment without borders will be immensely promoted.

The flat-earth notion that governments are somehow justified to discriminate against foreigners and in favour of the big end of town may have fitted with the era of blatant nationalism. In the 21st century, globalisation has made this a costly anachronism.

Alliance membership is to be voluntary, so that any member government can leave, for example when a new political party takes over or freedom-destroying regulations are imposed and upheld. Then, offending countries will face exclusion.

The emergence of the alliance will alter the political rules and create a counterweight to self-seeking producer and union lobbies. The bias will shift from political favouritism to open competition and economic growth. Margaret Thatcher expressed this clearly when she commented on the proposal, "Not only would the arrangement work to stimulate the members' prosperity; it would also act as a beacon and an example to others".

The alliance does, of course, not offer a panacea. Many domestic limitations on economic freedom will remain, annoying citizens and foreigners alike, but, the lesson of history is invariably that more openness eventually creates a bias in favour of removing selective, arbitrary regulations and instituting transparent and citizen-friendly rules.

The alliance plan comes as the Doha round of trade talks among 147 often unwilling governments hangs in a precarious balance and after the multilateral agreement on investment was killed off in diplomatic trench warfare. The emergence of an alliance of relatively free economies will signal that there are alternatives to phoney negotiation stratagems and that regimes that give precedence to political favouritism over citizens' economic rights no longer have a veto over progress towards an integrated world economy.

Australians will soon enjoy fairly free access to US markets, but by becoming a foundation member of the alliance, our government could signal that it is serious about fostering free co-operation. With free-trade partners New Zealand, Singapore and Thailand, the government could even start such an alliance in the region, holding out the lure of free access to Asia-Pacific countries willing to reform their economic institutions.

The task is too important to be left exclusively in the hands of technocrats, trade lawyers and diplomats. The alliance, by making borders economically nearly irrelevant, will let people work together unhindered and the side effect will be economic progress, stability and security.