Clive Crook has an excellent piece which I think raises an implicit question: what are good trade liberalizers to think about bilateral deals?
The dispiriting thing is that the talks could founder over the refusal to compromise, when the costs of compromise were indeed so low. (The political costs, I mean. When a country binds itself not to resort to protection, the economic costs are not just low but negative.) Governments no longer judge a successful Doha Round to be capable of delivering them a net political gain. Since that was the reason for the WTO in the first place, the game appears to be up.
Multilateral trade liberalization brought the world an awfully long way after 1945, but that era has come to an end. The trade-reform agenda is unfinished--especially in the developing world--but future progress, if any, will come from unilateral unreciprocated liberalization, or from discriminatory bilateral (or plurilateral) agreements, or some blend of the two. There has been a lot of the first lately, which is good. The danger lies with the second. It is a trend that the United States pioneered with its proliferating (until recently) regional FTAs. A rationale often offered for that approach was that regional FTAs were building blocks for broader multilateral liberalization, with the WTO presiding over the subsequent assembly. Skeptics said no: regional FTAs would complicate the system and create frictions that would make broader trade reform more, not less, difficult. I'd say the skeptics have been proven right.
The FTA tendency is capable, given an enfeebled WTO, of eventually unwinding some of what has been achieved over the past half-century. (On this, see Jagdish Bhagwati's new book.) If a growing China, India and Brazil follow the US example and use their muscle to develop their own hub-and-spoke networks of trade preference, the eventual costs in forgone trade and income could be great. The logic of trade protection never sleeps.
With Doha breathing its last, bilateral deals, or regional trade agreements, are the best liberalizers can hope for (though even that hope may be pretty anemic). The traditional stance of ardent free-traders such as Clive and myself has been to oppose bilateral deals on the grounds that they obstruct broad multilateral action. Well, now that broad multilateral action seems to be out of the question, we have to decide: are they better than nothing at all?
I'm not sure. On the one hand, they break down local interest groups that obstruct trade. On the other hand, they can divert trade flows in ways that are even more distortionary than broad tariffs. And they will probably create their own new interest groups--clothing retailers with relatives in the Panamanian garment trade, say--that will fight just as fiercely as the loathesome sugar lobby does today.
In pure theory, probably not. On the other hand, bilateral deals with America could help some poor people in Latin America right now. How many eggs am I willing to break in the hope of someday getting an omelette?
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