August 22, 2007


The Free-Trade Paradox: Why is trade booming while trade talks are crashing? (Moisés Naím, September/October 2007, Foreign Policy)

In 2006, the volume of global merchandise exports grew 15 percent, while the world economy grew roughly 4 percent. In 2007, the growth in world trade is again expected to outstrip the growth rate of the global economy. This sustained, rapid pace of trade growth has led to a more than fivefold increase in world merchandise exports between 1980 and 2005. An unprecedented number of countries, rich and poor alike, are seeing their overall economic performance boosted by strong export growth.

So, what explains the paradox of gridlocked trade agreements and surging trade flows? The short answer is technology and politics. In the past quarter century, technological innovations—from the Internet to cargo containers—lowered the costs of trading. And, in the same period, an international political environment more tolerant of openness created opportunities to lower barriers to imports and exports. China, India, the former Soviet Union, and many other countries launched major reforms that deepened their integration into the world’s economy. In developing countries alone, import tariffs dropped from an average of around 30 percent in the 1980s to less than 10 percent today. Indeed, one of the surprises of the past 20 or so years is how much governments have lowered obstacles to trade—unilaterally. Between 1983 and 2003, 66 percent of tariff reductions in the world took place because governments decided it was in their own interests to lower their import duties, 25 percent as a result of agreements reached in multilateral trade negotiations, and 10 percent through regional trade agreements with neighboring countries.

So, who needs free trade agreements if international trade is doing just fine without them?

We all do. Although trade may be booming, giving up on lowering the substantial trade barriers that still exist—in agriculture, in services, or in manufactured goods traded among poor countries—would be a historic mistake. Even the more pessimistic projections show that the adoption of reforms like those included in the Doha Round would yield substantial economic gains, anywhere from $50 billion to several hundred billion. Moreover, according to the World Bank, by 2015 as many as 32 million people could be lifted out of poverty if the Doha Round were successful.

But it isn’t just the money. As the volume of trade continues to grow, the need for clearer and more effective rules becomes more critical.

...and you can get away with anything with the left.

Posted by Orrin Judd at August 22, 2007 7:54 PM
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