Trade Agreements – A Reality Check

My last article, ‘A Matter of Agreement’, provided an introduction to Multi-lateral and Regional Trade Agreements (RTAs).  It contained definitions and showed the recent growth in RTAs.

This article provides more context to give insight into the topical trends and issues described.

There are some distinctive features to the World Trade Organization (WTO) architecture, which inform current thinking:

1. The ‘Most Favoured Nation’ principle benefits weaker Nations. WTO rules discourage discriminatory agreements. If a lower tariff is available to one WTO member it should normally be available to all.
2. Trade becomes easier across a wide range of products and services covered by the agreements. Similarly regulation covering such trade is standardised.
3. By definition these agreements cover a number of countries and markets. However, this adds complexity and makes them onerous to negotiate.  A corollary of this complexity is that the arrangements may also not be so well understood.
4. In Trade & Export Online we describe the Law of Comparative Advantage in Unit 1, which articulates the overall benefit of removing barriers to trade. However, one clear disadvantage is that there may be unwelcome impacts on small local businesses and vulnerable sectors.  Further, multi-national corporations may be well placed to exploit these opportunities with resultant economic and social consequences.

By contrast bilateral agreements or RTAs may be easier to put in place.  But, they may favour stronger Nations.  The ‘America First’ doctrine being followed in US trade negotiations might be an expression of this.

The WTO claims 164 members, covering 98% of World Trade.  These statistics and the case for the benefits that have resulted can be accessed on the enclosed link.

https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr_e.htm

With such an extensive scope it is understandable that over time focus has shifted within the WTO to addressing unresolved matters like trade disputes and intellectual property rights, also that more powerful Nations resort to bi-lateral, or even unilateral, actions that might get results more quickly.

Japan offers an interesting example of current realities.  Having recently concluded significant Regional Trade Agreements with the EU and under CPTPP, it still enters into trade talks with the USA. 

In summary, the WTO framework is being used where it helps, but bi-lateral dialogue is becoming important damage limitation where a powerful actor is unhappy, impatient and assertive in addressing perceived anomalies.