In its Fact Sheet on CAFTA, the US Trade Representative assures domestic sugar interests that the market access the Agreement offers is no bigger than "about one day’s U.S. production, or approximately one teaspoon of sugar per week per adult American" and boasts that "CAFTA would not come close to returning U.S. [sugar] imports to [mid-1990s] levels." This is emblematic of the meager pickings that is on offer from CAFTA to the participating countries.
When you bring this up in discussions with economics officials of developing nations, you often get the following response: "You don't understand, this is not about market access. It is about having an external anchor for our policies. It is about importing discipline from abroad and making our own liberalization more credible and less reversible."
Governments often use international institutions and agreements to tie their hands on economic policies. By signing on, say, to a bilateral trade agreement or to an IMF program, a government voluntarily gives up some of its policy space and commits to live by rules on which it has little influence.
How do we think about this?
To many political groups at home, this represents an abdication of sovereignty, is undemocratic, and should be avoided. Many economists (and political scientists), on the other hand, say that this is nothing other than a form of "delegation" by which a political authority gives up some autonomy in return for a greater good. Typically, the objective is to pre-commit against an undesirable political outcome in the future. In the domestic setting, such delegation is common: parliaments delegate authority to the executive, independent commissions, or judicial authorities all the time. In the U.S., for example, Congress delegates trade negotiation authority to the President (committing itself to a straight up or down vote) in order to rule out Congressional horse-trading and micro-management. Delegation to an external authority, the economists' argument goes, is no different, and should be viewed as an equally democratic prerogative.
What is not sufficiently appreciated in the discussion is that external discipline can be sought in two different kinds of settings--one of which is much more defensible on the traditional delegation grounds than the other.
Consider first the case where the government faces a "time-inconsistency" problem. It would like to commit to free trade or to fiscal balance, but realizes that over time it will give in to pressure and deviate from what is its optimal policy ex ante. So it chooses to tie its hands through external discipline. This way, when protectionists and big spenders show up at its door, the government says: "sorry, the WTO or the IMF will not let me do it." Everyone is better off, save for the lobbyists and special interests. This is the good kind of delegation and external discipline.
Now consider the second kind. Here, the government fears not its future self, but its future opponents: the opposition party (or parties). The latter may have different views on economic policy, and if victorious in the next election, may well choose to shift course. Now when the incumbent government enters an international agreement, it does so to tie the hands of its opponents. From an ex-ante welfare standpoint, this strategy has much less to recommend itself. The future government may have better or worse ideas about government policy, and it is not clear that restricting its policy space is a win-win outcome. (This by the way is why I think it was a good idea to hold a referendum on CAFTA in Costa Rica.)
So next time you hear the external-anchor argument, ask yourself whether the government in question wants to "import" external discipline for the first reason or the second.