Global Economic Prospects 2005: Trade, Regionalism, and Development
International trade is one of the most prominent global economic issues today. Do regional trade agreements bring greater benefits to people in developing countries in desperate need of jobs and better public services? This is the subject of the Global Economic Prospects 2005.
The problem of discrimination is less than when the GATT was founded after the war because tariffs and non-tariff barriers have come down the margin of preference is generally less. Moreover, countries are becoming parties to multiple agreements. Nonetheless, some countries inevitably will enjoy better access than others, and its those developing countries we worry about.
The interesting question is whether this form of liberalization ultimately is a stepping stone to more liberal, multilateral agreements. Do countries learn the benefits of trade from opening up first to regional partners, and therefore support multilateral liberalization? Or do they enjoy their preferential access, and oppose multilateral agreements because they do not want to see the value of their preferences erode? The jury is still out. Doha is the first test.
And, in fact, if we look at the trade coverage of regional trading agreements, we find that agreements with the U.S. or with the EU now constitute roughly 80 percent of all trade covered in regional trading arrangements. These are big players, indeed.
The second part of your question concerns Brazil's strategy, and asks whether it makes sense to tighten Mercosur, reach an agreement with the EU, or focus heavily on China. In fact, Brazil could usefully do all three things, but it must do so in a way that is consistent and coherent. It's important, for example, to improve Mercosur by taking advantage of the opportunities to improve improve border crossings, reduce the time it takes for exports to cross into each other's markets, which drive up the costs of those exports, and further harmonize regulations, all of which would expand trade at no efficiency costs. At some point, bringing down Mercosurs external tariff to NAFTA-competitive levels would improve competitiveness of members.
Simultaneously, Brazil is also seeking to expand its markets in neighboring Latin American countries, with China, and with the EU through bilateral agreements. More importantly, Brazil is working intensively on a multilateral agreement through the WTOs Doha round. In fact, Brazil has been very important in moving the WTO's Doha discussions towards a more pro-development outcome simply because of Brazil's insistence on serious liberalization in agriculture, particularly in the rich countries where tariffs and subsidies are high. This benefits not only Brazil, but also other developing countries.
In sum, what I have sketched out here is a tripartite policy, a regional policy focusing on trade facilitation within Mercosur and reducing the cost of trading within Mercosur; second, a multilateral trade strategy to gain access to the markets of the world, including China and the EU; and third, a unilateral strategy that eventually would entail reducing the common external tariff and opening Brazils services markets to spur domestic competition and productivity.
So, the short answer is East Asia has much to gain with a multilateral system, but can obtain the benefits of coordination through participation in negotiating coalitions that suit its interests probably more readily than by forming a regional trade agreement.
As part of this process, the Philippines' growth rate is likely to moderate somewhat, but this should not be seen as cause for concern. Rather, it reflects cyclical developments in the global economy and a return to more sustainable growth rates.
In policy terms, this is a good time to begin new reforms -- or to consolidate reforms underway. During good times such as we are experiencing now and are likely to experience over the next 12 to 24 months, reforms are easier to undertake and protect growth rates in the long run.
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