Free traders are ecstatic. Negotiators at the 9th World Trade Organization ministerial conference in Bali cheered, hugged, and wept at what they see as the successful culmination of their recent round of talks. “A giant step for businesses large and small,” enthused the CEO of UPS. The well-regarded Fung Business Intelligence Centre announced that the agreement among the 159 WTO members “will not only restore confidence in the multilateral trading system, but also boost world GDP by nearly $1 trillion and generate 21 million jobs.”
“Joy unbounded, with wealth surrounded,” to borrow from Gilbert and Sullivan. The joy is easy to understand. Any agreement reached after years of bickering takes on out-size proportions, witness the joy last week when Democrats and Republicans reached a budget agreement. Never mind that the Ryan-Murray deal can have little fiscal impact. From little compromises mighty agreements of consequence grow seems to be the general belief. The fact of deal is more important than the facts in a deal. Hence the joy unbounded in Bali and, separately, here in Washington.
Unfortunately, joy unbounded will not necessarily leave us “with wealth surrounded.” The WTO agreement is a modest one, aimed primarily at facilitating the cross-border movement of goods by reducing customs delays at national borders. Richer countries will provide less developed ones with resources with which to train border agents and, presumably, reduce their temptation and ability to look to bribes to supplement their meagre incomes. All to the good. But I am reminded of a British economist, who shall remain nameless lest his superiors at the international agency to which he has been seconded demonstrate that in their circles candor is not widely appreciated. He warned me that estimates of the economic effect of trade deals are handed down from above to staff economists who only then develop data-laden reports to support their bosses’ press releases.
The fact is that the trade facilitation deal just reached in Bali is of little real consequence, other than as proof that minor deals can be reached. The Wall Street Journal’s description throws a bit of cold water on the celebrants, “A scaled-back package…, a modest break-through in the trade discussion that began in 2001 in Doha, Qatar….[It] still needs formal ratification by all 159 WTO members and could take months, or even years, to come into effect.”
The real action is at the regional or bilateral level, rather than at the WTO global level. Add up all the demands for protection by important voting blocs in every member country, and you have a prescription for paralysis. Reduce the number of negotiators and you reduce the special interests being catered to, and increase pressure on those nations not unenthused about a deal, but fearful that remaining outside of the tent might disadvantage them in the region.
Regionalization produces an alphabet soup of trade deals:
· Nafta, the North American Free Trade Agreement that reduced trade barriers between the US, Mexico and Canada, will mark its 20th anniversary on January 1 of the coming year. Mexicans plan to celebrate, American politicians, especially Democrats whose then-leader President Bill Clinton signed the deal that its critics claim cost 700,000 America jobs, are hoping voters won’t notice the anniversary.
· TTIP, the Trans-Atlantic Trade and Investment Partnership, a deal that would remove some of the non-tariff barriers (tariffs are already low) to trade and investment between the US and the EU. Auto makers are keen to harmonize safety regulations in the US and EU, leftish Democrats are keen to maintain a good distance between America’s tougher banking regulations and the weaker ones that might emerge from harmonization.
· TPP, the proposed Trans-Pacific Partnership between the three NAFTA members and 9 countries in the Asia-Pacific region. If successful this would cover about 40% of US imports and exports.
· CAFTA-DR, the free trade deal between US, on the one side, and Central American countries and the Dominican Republic on the other hand.
· AGOA, the trade pact between America and the sub-Saharan African countries, due to expire in 2015 unless congress responds favorably to President Obama’s request to renew it.