Shanghai has always been the locomotive of Chinese business development. Without exception, Shanghai is once again chosen to spear head the pilot project of establishing free trade areas (FTAs) in the city. What comes with the pilot project remains murky. The revision of regulations is pending. But general belief is that it includes loosening up import and export restrictions, quota limits, foreign exchanges and tariffs.
Free trade is a very catchy and popular phrase in economics and finance. Free trade means all trade barriers have been eliminated. In theory, the complete removal of roadblocks from the trading path will increase the fluidity of merchandise and the mobility of people. As such, people always feel good about having free trade. The only exception is people who are protected by not having free trade. Even for those vulnerable groups in certain ways, they will say there should be free trade in all areas other than the business on which their livelihood depend. Therefore, throwing in a policy of free trade is always a good call for all concerned.
But if free trade can solve every thing, why can’t we simply have free trade everywhere and for every one without any restriction? How about WTO? Isn’t free trade is already achieved when a country becomes a member of WTO? All these phenomena speak loudly about the fact it is not easy to achieve free trade. In order to obtain the greatest effectiveness of having free trade zones, there are several questions that regulators need to ask before taking any substantive steps.
First all, why cannot we implement the measures out side the free trade areas? If these measures can be applied to the biggest extent, for instance for the whole province or for the whole country, they would do much more good than limiting their usefulness to the defined areas. The second question is why and with what the people conducting business in the designated areas should be benefitted? The problems of having certain areas standing out from the others will create a special category of businessmen and investors. If they are given nothing, the FTAs will fail. But there will be a lot of speculations at the expense of people outside the areas if they are given too much. Some analysts have warned against the possibility of the overheating of certain stocks when the news was announced.
Is free trade a panacea? Maybe not, and yet it is definitely good medicine. But do not forget medicine brings both benefits and harms. The duty of a physician is to balance the trade off between potential benefits and harms. The same applies to the implementation of FTAs.