This Time Might Indeed Be Different For World Trade

Since World War II, successive rounds of the GATT/WTO negotiations have contributed to freer trade and prosperity globally, but the WTO has become too large and unwieldy to proceed, as shown by the impasse after 11 years of the Doha round of negotiations. A key trend in international trade during the last decades has been regionalization. However, several bold proposals with respect to a further liberalization of the global trade have surfaced recently. If implemented, these have potential to significantly improve the medium term global economic outlook. (source: Andris Strazds & Thomas Grennes – Roubini Global Economics – 29/10/2012)

An EU-US High Level Working Group is expected in December to issue report recommending the negotiation of a comprehensive transatlantic trade and investment agreement. At the same time negotiations of a Free Trade Agreement between the EU and Japan will likely be launched in the coming months following joint scoping exercises concluded earlier this year. Yukio Hatoyama, a former prime minister of Japan, has already called for it to be turned into a more comprehensive Economic Integration Agreement by covering areas such as regulatory convergence and approximation of legislation. Agreement among EU, US and Japan would have potential to significantly contribute to economic growth at a time when expressions such as “new normal” or “lost decade” are increasingly used to describe medium term economic outlook. European Commission estimates that medium term growth rates could be raised by as much as 2% and over 2 million jobs could be created by EU pursuing an ambitious trade agenda. Similar benefits could accrue to US and Japan. Freer trade would also allow the benefits from innovation to spread faster. Even non-participating countries can be expected to receive some benefits from faster economic growth and higher incomes in the three. In the future geographical scope could certainly be expanded with countries such as Canada or South Korea being logical candidates to join. If broader Asia-Pacific Economic Cooperation group (APEC) participated in such a union, resulting unit would include a very high percentage of world trade. It would be easy to dismiss the idea as unrealistic, but prior to Treaty of Rome in 1957, many skeptics denounced idea as unrealistic. In spite of current problems with Euro, the single market features of EU have benefitted members for more than half a century.

Despite enormous potential and initial momentum, the obstacles faced by the proposals would certainly also be huge. While benefits would significantly exceed costs, the former are likely to be more dispersed and latter more concentrated, in particular, because some of the benefits would also accrue to customers rather than businesses. This means that pressure against the liberalization from interest groups in some industries will be significant. Tradeoffs between the scope covered and speed with which the negotiations can move ahead will have to be made. For example, already before the start of negotiations it appears to be clear the highly sensitive agricultural sector or at least large parts of it will have to be excluded from agreements. In the past, the economic crises such as the Great Depression of 1930s have often resulted in retrenchment and increased protectionism that included infamous Smoot-Hawley tariff. The result was lose-lose outcomes. The current bold proposals show that some policymakers today realize that more trade, not less, is needed to improve economic outlook. The obstacles faced will be significant, but the potential benefits are much larger. Successful implementation of the above proposals could be the difference between a lost decade and one where economic growth is reignited. The benefits of innovation could be difused more widely and more productive jobs could be created by increasing trade and economic integration.


Acerca de ignaciocovelo
Consultor Internacional


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