Tovias on “cross-regionalism”

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Alfred Tovias summarises good news and bad news about PTAs:

1. There is no danger of trading blocs emerging nor of a clash between them.

2. There are no new exclusive spheres of influence being created.

3. The new foreign policy goal of preferentialism is to neutralize the influence exerted by rival trading powers in a given zone; reverse trade diversion in favour of the distant trade power must be considered as positive, since it unravels previous trade diversion.

4. Economic opportunity is what drives the choice of preferred trade partners made by developing countries.

5. The proliferation of PTAs is taking place without any control whatsoever.

6. Large negotiating partners are favoured by the proliferation of preferential trading.

7. Least developed countries tend to be less favoured by emerging economies than other more developed ones (including other emerging economies).

Some highlights from #1 and #4:

The world is not evolving into three disparate, autarkic trading blocs. Countries are linked by a web of business ties across oceans that bind the world market together. If there are no trading blocs in sight, there is neither a danger of a clash nor trade wars between them. There is neither a perspective of a cartel-like arrangement emerging which would divide the world Yalta-like into trading blocs. On the contrary, there seems to be increasing competition of the leading trade blocs for influence. In fact the present trend is more likely to lead to anarchy, chaos and disorder, which are the real dangers the WTO should be aware of…

Setting aside the first best which is multilateral trade agreements based on MFN treatment, it can be argued that the present cross-regional trend although a second best is better than conventional regionalism. The reasoning is as follows: Small developing countries pick potential partners with which to negotiate preferential trade liberalization not because the latter are militarily powerful, ethnically similar or like-minded countries but simply because they are looking for markets, wherever they are. These multiple FTA dealings are driven by the private sectors of developing countries. If the market is in the US, so be it; if in China, so be it. Therefore there is less scope in developing countries for trade relations to be based on non-commercial considerations, which is what the introduction of MFN was trying to obtain as well.

But this comment baffles me: “There is increasing regulatory competition between the US and EU in bilateral negotiations, e.g. in the domain of Intellectual Protection. This is good per se.” The following discussion discuss tariff preferences (“giving a preference to everybody means not giving a preference to anybody”) and does not explore regulatory competition. I haven’t seen much enthusiasm for the intellectual property components of bilateral trade agreements, so what is Tovias arguing?

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