Somehow I missed the release of Global Economic Prospects 2005 by the World Bank about seventeen months ago. The volume is dedicated to examining preferential trade. I now have 172 pages of reading to tackle…

[This year’s edition looks at migration and remittances, which are also sweet topics.]

Dan Drezner points to a FT story that says competitive liberalization is kicking into high-gear, as the US shifts from trade deals with foreign policy implications (Bahrain, Oman, CAFTA) to trade deals with larger economic implications (Malaysia, South Korea). And the IIE’s latest book details the possible benefits of a Swiss-US FTA. Once again, agriculture is the critical component.

Ben Muse thinks that we ought to reconsider the potential for regional and bilateral trade deals to be the engine of trade liberalization in light of the Doha round’s stall. I’m doubtful of that strategy.

The FTAA isn’t moving because the US is insisting upon the inconclusion of non-trade issues while Brazil is demanding that agricultural subsidies be addressed. The recently announced Korea-US PTA will cause significant trade diversion and is worth pursuing “only if agricultural reforms are an integral part of the deal,” which are quite unpopular in Korea (pdf).

For a menu of potential PTAs, Muse highlights Jeffery Schott’s Free Trade Agreements: US Strategies and Priorities. Ben, which FTAs do you think the US ought to pursue?

Dan Drezner believes that the to-be-negotiated US-Korea FTA/PTA will have a big (beneficial) economic impact. I think we ought to see what’s on the negotiating table before making any judgments. As Drezner’s commenters note, the Koreans are fiercely attached to their agricultural protections.

The USTR press release stresses the size of Korea’s economy (the world’s tenth largest). But the relevant measure is the size of the protectionist distortions that liberalization will remove. Both the US and Korea have relatively low trade barriers, so we shouldn’t necessarily anticipate massive gains from liberalization between two large economies. There may be tariffs peak or barriers to investment, but it’s difficult to know how much progress will be made on those topics. For example, agriculture certainly remains well protected, but that sector is a sacred cow the negotiations are unlikely to touch.

Preferential trade agreements used to be sufficiently rare that their creation warranted an announcement. At the current rate, however, I may have to cease the practice.

S KOREA, U.S. TO ANNOUNCE START OF FTA NEGOTIATIONS

WASHINGTON – South Korea and the United States will announce the start of free trade agreement (FTA) negotiations Thursday on Capitol Hill with a July 2007 deadline in mind. The talks will begin in May after three months of consultations between the Bush administration and the Congress. U.S. officials hope to wrap up the talks before the “trade promotion authority” runs out in July.

In case you haven’t noticed, China has been relentlessly pursuing preferential trade agreements:

The past five years has witnessed China’s readiness to establish free trade areas (FTAs) with various trade partners, according to sources with the Ministry of Commerce. By far, China has been talking with 27 countries and regions on the establishment of nine FTAs, covering one fourth of China’s total trade, sources with the Ministry of Commerce said. [China Daily]

There’s a brief article in the Hindu Business Line today about the interaction of regional trade agreements and the multilateral trading system. Two key points were made. Mr Kamal Nath, Union Commerce Minister, India, argued that regional trade agreements are here to stay as a feature of the global trading system. Mr Ian Pearson, the UK trade minister, argued that “FTAs can provide the framework to tackle non-tariff barriers in areas such standards and investment, and in encouraging conformity assessment and regulatory co-operation.”

Nath’s observation is disappointing but likely true. The only means to undo the distortions caused by preferential trade regimes is to drive MFN tariffs to zero.

Daniella Markheim and James E. Dean of the Heritage Foundation make a case for a bilateral trade agreement between the United States and Switzerland. While it’s possible that a Swiss-US PTA may be preferable to the status quo, I’m not convinced that the benefits outweigh the opportunity costs, which include the potential for unilateral or multilateral non-discriminatory liberalization. Swiss-US trade is already relatively liberalized, and I think that President Bush’s limited political capital on trade would be best expended on efforts that will have a greater impact.

The most relevant academic paper in the wake of SAFTA’s creation is “South Asia: Does Preferential Trade Liberalization Make Sense?” by Arvind Panagariya. In short:

The move towards preferential trading is a mistake, at least from the viewpoint of India. India continues to have very high trade barriers so that the scope for trade diversion and the losses accompanying it are likely to be considerable. Business lobbies being relatively powerful in most of the countries in the region, they are likely to exploit the rules of origin and sectoral exceptions in these arrangements in ways that will maximize trade diversion and minimize trade creation. In as much as the rules of origin give bureaucrats power, employment and opportunities to share in the rents created by tariff preferences, they too will become active parties to the diversionary tactics of business lobbies. Therefore, the member countries are better advised to proceed along nondiscriminatory lines in achieving further liberalization.

The PDF is here.

Courtesy of Asia Pulse:

NEW DELHI – The South Asian Free Trade Area (SAFTA), which paves the way for free trade in goods among South Asian Association for Regional Cooperation (SAARC) member countries came into effect on Sunday. As per the agreement, India, Pakistan and Sri Lanka will impose their customs duties to 0-5 per cent by 2013, while the least developed members Bangladesh, Maldives, Nepal and Bhutan will do so by 2018. India, as the larger and relatively developed economy, will provide concessions to Least Developed Countries (LDCs), including a mechanism to compensate for revenue losses, due to a reduction in duties. The LDCs which will be compensated include Bangladesh and Maldives.