Free Trade and State Aid

Paper Summary:

This report focuses on the compatibility that exists between different states in the U.S. that aid industry and the ways in which this situation is amenable or contradictory in relation to a free trade policy. The main cases that are presented in this report focus on direct foreign investment that occurs within the U.S., for example, the building of Nissan automobile manufacturing plants in Tennessee and the privatization of water utilities in California. The report also addresses issues of free trade versus protectionism and the role of the World Trade Organization and OECD in establishing or negating free trade practices as they filter down to the state level.

From the Paper:

"When most people think of the U.S., they think of a positive free-market economy rather than a prohibitive tariff state. This common assumption is not always valid; in many instances, the flow of imported goods is limited so as to support exports, and this flow tends to vary from state to state with decreased federalization. That is, some states see it fit to embrace the economic opportunity promised by lowering taxes to encourage direct foreign investments, and other states either have established economies or protectionist majorities in their political structures making this situation untenable. The arguments that support state and national policy are fueled by considerations that strive to protect domestic producers in many cases. Proponents of free-trade argue that these policies create barriers that limit the free flow of goods internationally, and thus increase consumer costs."

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