International Trade: New Patterns of Trade, Production & Investment

By Nigel Grimwade | Go to book overview

Chapter 9

Multilateralism Versus Regionalism

CHAPTER OUTLINES: Introduction. Multilateral Trade Liberalisation—the GATT rounds, the World Trade Organisation (WTO), a millennium round? Regional Trade Liberalisation—the theory of regional economic integration, the new regionalism, does the growth of the new regionalism matter? Conclusion.


Introduction

If protectionism reduces global economic welfare by restricting trade and reducing economic efficiency, it follows that trade liberalisation-the process of reducing or eliminating manmade barriers to trade—can bring efficiency gains and make the world as a whole better off. Countries could reap these gains themselves simply by getting rid of their import restrictions. In practice, however, governments are rarely prepared to do so. Instead, they prefer to keep the lowering or removal of import barriers as a bargaining counter which can be used to secure improved access for their exports in the markets of their trading partners. Hence, the negotiation of trading agreements with other countries has, historically, been the main way in which the global liberalisation of world trade has taken place. Each country offers some reductions in its own tariffs or non-tariff barriers in exchange for other equivalent concessions from its partners. The negotiated approach to trade liberalisation also has the advantage that it enables the government of each country to play off the export sector, which favours liberalisation, against the import substitution sector, which is more inclined to protection and opposes any lowering of import barriers.

Countries may negotiate trading agreements on a bilateral basis with any of their trading partners, which they choose. Bilateral negotiations, however, suffer from several disadvantages. It takes much longer to achieve freer trade if each country bargains one-by-one with all its trading partners. Moreover, countries are unlikely to concede much in a bilateral negotiation because they do not want to lose a bargaining counter in any subsequent negotiations with other partners. This will be especially true in negotiations with countries that are not principal suppliers. Much more can be achieved where countries negotiate within a multilateral forum. The signing of the General Agreement on Tariffs and Trade (GATT) in 1947 by some twenty-three leading trading nations created such a forum. A key provision of the GATT was for contracting parties to meet

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