Economics focus Least favoured nation
Favouritism in trade cannot be stopped. Perhaps it can be broadened MONGOLIA is a landlocked country where livestock outnumber people by 12 or more to one. It joined the World Trade Organisation (WTO) in 1997, keen, among other things, to export more cashmere and meat. But according to Damedin Tsogtbaatar, of the Mongolian Development Strategy Institute, the country has put rather more into the organisation than it has got out of it. It "chose, ironically, a rather Buddhist path of self-perfection and good WTO-consistent behaviour, without regard to whether other countries were doing the same." If only the WTO's bigger members could say the same. Had they asked more of themselves than of their rivals, they might have saved the Doha round of trade talks, which was suspended indefinitely on July 24th. Instead, the great trading powers--America, the European Union and Japan--may now turn their energies to striking deals with individual countries or regional blocks. Hundreds of "preferential" deals of this kind already exist, all of them eroding the WTO principle of "non-discrimination" by favouring the imports of some members over others. Mongolia is now the only WTO member that has not joined one. In a global trade round, the big players lock horns with each other, then extend their concessions to every other WTO member, even Mongolia. Outside the multilateral system, however, the biggest powers are free to pick off smaller economies one by one. Many fear this will result in a system of "hubs and spokes", in which small economies (the spokes) are drawn into agreements with big ones (the hubs), but not with each other. This is wonderful for the rich-country hubs--they can import goods from wherever they like, even as their exporters enjoy outlying markets all to themselves. It is not so great for the spokes. By lowering tariffs on the rich countries' goods, they may trick themselves into buying from the hub, rather than from cheaper producers elsewhere. These imports arrive without paying duty, which is good for a spoke's consumers, but bad for its treasury. Indeed, the World Bank reckons a hub-and-spoke trading system would cost developing countries more than $20 billion a year. Fortunately perhaps, the future of world trade is unlikely to conform to such a neat, radial pattern. In a new discussion paper* for the Centre for Economic Policy Research, a network of economists, Richard Baldwin argues that the trading system is much messier, and in some ways more hopeful. Today's trading blocks in America, Europe and Asia are "fuzzy" and "leaky", he says. Many of the spokes have deals with each other, and the blocks overlap. Mexico, for example, is a member of NAFTA and party to a free-trade agreement with the EU and others. This tangle of interlocking and overlapping deals raises an interesting conceptual question. What if the forces of regionalism and bilateralism were left to play out to their logical conclusion? If every one of the WTO's 149 members were to strike a free-trade deal with every other, the world would be criss-crossed by 11,026 bilateral deals. How would this differ from multilateral liberalisation? A bilateral or regional deal, by definition, favours one nation's goods over another's. It thus matters a great deal where an import arrives from. But a product's origins can be difficult to pin down. As a member of NAFTA, Mexico can export its overcoats to the United States duty-free. But what counts as a Mexican overcoat? What if the zip comes from Taiwan, the lining from India, or the fabric from Britain? The genealogical rules that determine a product's country of origin are bewildering, even comical. Under NAFTA, for example, a coat is no longer Mexican if the maker imports the yarn or fabric, or sews the coat together with imported thread. American anglophiles, however, get special treatment: Mexican garments made from Harris tweed, which is hand-woven with a loom less than 76cm wide and imported from Britain, enter duty-free. These elaborate rules of origin also differ from agreement to agreement. Mexican garment-makers must contend with one set of regulations for America, another for the EU. Worse, the rules set off ripple effects throughout the rest of the world trading system: because America charges duty on Mexican coats made from Indian fabric, Mexico will not import fabric from India. It is as if Mexico had imposed a tariff on India, and a bilateral deal between the pair would do nothing to change that. Flex your PECS For the European Union, this muddle eventually became unbearable. EU firms, Mr Baldwin explains, could not necessarily import goods made by a Hungarian affiliate with Polish parts--even though Hungary and Poland each had free-trade deals with the EU and with each other. The EU's answer was the Pan-European Cumulation System, or PECS, which was introduced in 1997, and extended to Turkey in 1999. This system turned a latticework of bilateral rules into a single multilateral umbrella. Under the new arrangement, a coat that was 50% Hungarian, 30% Turkish and 20% Polish counted as 100% European. Mr Baldwin thinks other trading blocks, East Asia's in particular, should work on their own PECS. Perhaps the WTO, an organisation suddenly left with time on its hands, could help out. "No one argues that this tangle of trade deals is the best way to organise world trade," he writes. But no one thinks they are going away either. Only last November, for example, the Bangkok Agreement, signed in 1975 as Asia's first preferential trade agreement between developing countries, revived itself with a new name--the Asia-Pacific Trade Agreement--and a new ambition to impose some common standards on Asia's noodle soup of trade deals. Even Mongolia is interested in joining. __________________________ * "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade". CEPR Discussion Paper No. 5775 (The Economist Aug 5th 2006 Finance and economics p. 64) *** sustineti [romania_eu_list] prin 2% din impozitul pe 2005 - detalii la http://www.doilasuta.ro *** Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/romania_eu_list/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
