Influential governments can certainly attempt to impose their view of what international norms should be. But exploiting the gains from economic interdependence inevitably creates a common interest in anything which is a barrier to transactions across national borders. There is no clear line between tariffs and subsidies on the one hand, and rules about an increasingly wide notion of ‘trade-related’ barriers on the other. The historical evolution of the agenda of GATT is a better guide than political rhetoric about the WTO. The spectrum which includes government procurement, investment, intellectual property, etc, all the way through to ‘behind the border’ measures is continuous. We have moved from ‘trade’ to ‘economic integration’.
One of the major strengths of APEC is the way it deals with liberalization and facilitation, the Leaders’ Agenda on Implementing Structural Reform, and financial issues within a coherent framework.
Among potential responses to the financial crisis which are being discussed in the networks of ADBI is development of a ‘transparency mechanism’ to distinguish attempts to impose labour and environmental standards which go beyond international norms from elements of economic integration which are increasingly important in the modern world. The task is analogous to using ‘sound science’ to distinguish appropriate sanitary and phyto-sanitary measures from disguised protectionism. It is essentially finding ways to make operational the concept of long-run comparative advantage, including assessments of the impact on relative resource endowments of learning so that what will be economic may not be economic immediately. This is obviously complex; it requires knowledge and judgment rather than formulation and implementation of simple rules.
We can see some precedent in how concepts of ‘producer subsidy equivalent’ enabled GATT to develop a common international understanding for incorporating agricultural trade in the multilateral system. The breadth of the current agenda is simply vastly more demanding. Traditional WTO ‘Rounds’ may not the best way forward. A ‘single final undertaking’ is a great mechanism for defining a consensus, but it may be overwhelmed by the number of parties now involved and the range of the agenda being contemplated. Regional trade agreements are no longer simply retreats to preferentialism, they are also vehicles for exploring how economic diplomacy can progress. They can be ‘termites’, but they can also be experiments.
There has been no diminution in the need for Bhagwati’s ‘eternal vigilance’, but it should be focused on whether we are moving towards a long-run global optimum.
The financial crisis adds urgency but not a new concern.
Gary Hawke comments that:
“Regional trade agreements are no longer simply retreats to preferentialism, they are also vehicles for exploring how economic diplomacy can progress. They can be ‘termites’, but they can also be experiments.”
These experiments, I assume, are efforts to deal with issues other than traditional border barriers to trade. I agree with Gary’s remark that we have moved from trade to economic integration as the main game in international economic diplomacy.
This implies attention to matters including:
• reducing uncertainty about future market access: for example anti-dumping actions or other arbitrary or discriminatory measures to deal with trade tensions.
• reducing physical and administrative bottlenecks, such as shortfalls in infrastructure, ranging from harbours to telecommunications.
• harmonizing domestic legislation and rules, such as those relating to competition policy or product and process standards.
Preferential trading arrangements (PTAs) are currently the most prevalent experiments to deal with these. But they are not the only, or the most effective ways to do so.
There is no need to tie experiments to deal with such matters to negotiations for discriminatory liberalisation of border barriers to trade. In fact negotiations are not all that relevant.
As I note in a forthcoming post in this Forum, issues such as improving business mobility or better trade logistics do not need to be negotiated. Nor are negotiations sufficient, since practical progress needs more than statements of intent: The effective constraint on action is the capacity to design and implement compatible institutions and procedures.
In many cases, sections of PTAs dealing with facilitation are mere statements of intent. It has been easy for governments to agree in principle to reduce the costs and risks involved. But agreements in principle need to be followed up by creating the capacity to implement practical means of reducing costs or risks of various forms of international commerce. For example, reducing the costs and risks of business travel needs patient work to set up compatible information technology to allow such movement to be combined with obvious security concerns.
PTAs usually set up working groups to implement the practical work needed. They may well find practical solutions. But the solution is then restricted to members of the PTA. Like WTO negotiations, PTAs rely on agreement on single undertaking.
In practice, PTA partners are forged with with trading partners which do not threaten deeply entrenched producer interests. These are not necessarily an economy’s main trading partners.
It is far more efficient to experiment with new issues in regional arrangements which are not discriminatory and do not automatically assume the need to negotiate a single undertaking which makes progress on new positive-sum games hostage to progress on liberalising border barriers.
Therefore it would be useful to distinguish, carefully, between bilateral and regional arrangements which are discriminatory termites, and those (like APEC) which seek to deal with new issues in a non-discriminatory way.
Andrew Elek is obviously right that barriers to economic integration can be addressed by unilateral action. Furthermore, I agree entirely with the recent argument in a report for the TransTasman Transparency Group by Bill Carmichael, Saul Eslake, Charles Finny, and Roger Kerr that the Doha Round can be saved only by getting governments to focus on their own barriers to trade.
(See also http://www.eastasiaforum.org/2009/01/14/the-g20-commitment-to-resist- protectionism/#more-1205)
However, the failure of this argument to attract endorsement at the WTO or from the Australian government shows how difficult it will be to shift the debate from the context of traditional trade negotiations dominated by trade lawyers.
One of the initial conceptions of APEC was “concerted unilateralism”. The apparent oxymoron reflects political reality. In the memorable image created by Roberto Romulo of the Philippines, APEC shared its inspiration with Alcoholics Anonymous: group members have a common interest, know perfectly well what has to be done, know further that the outcome depends above all on their individual efforts, but find it helpful to come together from time to time to renew common objectives and to share news on individual progress. Economic diplomacy differs only in that politicians find it easier to deal with domestic constituents if they can point to similar action being taken overseas. Even business mobility and trade logistics benefit from acknowledging this.
APEC has had considerable success in achieving reductions in costs of trade, and some success in agreeing standard terms for chapters in trade agreements that take them beyond market access to economic integration. But progress will often be faster among small groups, especially as there can be further variation from acceptance of the same obligations by all parties. There is no disagreement, however, with the proposition that access should be as open as possible.