Thanks to the recent explosion of regional trade arrangements, whose members agree to liberalise trade among themselves, the WTO is just one cook among many stirring the free-trade broth. Only a handful of the WTO’s members are not already part of some other local club. The European Union has 25 members and could soon have more. Some Americans are already looking for ways to meld together the North American Free-Trade Agreement (NAFTA), which was formed with Mexico and Canada, with Mercosur, a customs union formed by four South American countries. Free-trade areas are planned in both South-East Asia and South Asia. And the 19-strong Asia-Pacific Economic Co-operation (APEC) forum has a grand plan for “free trade in the Pacific” by 2020.
Put this way, it sounds like something to applaud.What is it about their cumulative effect that should give pause for thought?
Most governments and many free traders believe that regional free-trade areas are a step in the right direction. Their defence is usually a mixture of economic principle, practical diplomacy and visionary politics. First, they ask, how can it be possible for countries to agree to scrap tariffs among themselves and not make trade freer? Then they argue that it is often easier to make a deal in a small group than in the unwieldy WTO. And, finally, trade agreements, they say, are politically valuable: if countries are tied by commerce, they are less likely to start shooting at each other.
The first of these arguments, plausible as it seems, is simply false. Regional “free-trade areas” need not make trade freer. By liberalising trade only with their neighbours, countries are by definition discriminating against those not lucky enough to be in the local club. Some goods will be imported from other members of the free-trade area at the expense of producers elsewhere; and members will begin to specialise in industries in which they lack comparative advantage.
Thus, the EU has a bloated farming industry while many producers in poorer countries suffer from not being able to serve its markets; and NAFTA has complicated “rules of origin” requirements, stipulating how much of a car needs to be made in Mexico to qualify as “NAFTAN”, and so enter America tariff-free. It is always better to liberalise without discrimination than to open up only to neighbours; sometimes, selective opening is worse than doing nothing at all.
The argument that, despite this danger, regional free trade areas represent a speedier, more practical way to proceed than does the WTO, is also open to question. True, the Uruguay round lasted more than seven years, and even now governments are struggling to finish off some outstanding negotiations, but slow progress bedevils regional arrangements, too. Despite much talk about expansion, the membership of NAFTA is stuck at three. APEC is moving at a glacial pace. Similarly, although the local clubs sometimes broach subjects long before the WTO (for instance, NAFTA has a treaty on foreign direct investment), they can also introduce possible bugbears (NAFTA also contains worrying agreements on standards for labour and environmental protection).
Moreover, the standard against which each regional trade pact needs to be measured has, mercifully, been raised. Back in the 1950s, the idea of a customs union in Europe (even if it was linked to an idea as awful as the common agricultural policy) was attractive because the alternative (no customs union at all) was plainly worse. Now, the emergence of the WTO has raised the hurdle: the architects of regional agreements know they will have to defend their plans against the charge of setting back liberal trade, and adjust their plans accordingly. That is fine, but it raises a question: would it not be simpler, after all, to make these deals at the WTO?
That leaves the last “political” argument - that bodies such as APEC and Mercosur have brought old enemies together. So they have. Again, however, would this be any less true of broader multilateral agreements? And there are limits to how far the goal of international amity, worthy as it is, should be used to justify economic lunacy. Invoking France’s post-war friendship with Germany seems an odd way to defend the EU’s limits on imports of Argentine chocolate.
If governments paid more attention to the threat of regionalism, that would be an exellent start. One excuse for their not doing so is that the WTO’s own system for policing regional trade agreements is a mess. At present, each new free-trade area or customs union is appraised by a committee, open to all members and with extremely vague terms of reference. Unsurprisingly, only six of the 70-odd committees formed since GATT began have ever reached a firm conclusion. It would be much better if agreements were examined by a smaller team of independent scrutineers with a precise mandate to assess the effect on world trade - and, in particular, the way that the new agreement treats outsiders.
It can be hard to say whether any free-trade area is so restrictive that its costs outweigh its benefits - though Mercosur, by some calculations, fails the test, and the case for the new ASEAN agreements also looks weak. Most agreements are a mixture of good and bad. The long-term challenge for the ministers about to meet in Singapore is thus twofold: to change the worst details in their own regional deals; and, even more important, to press ahead with multilateral trade liberalisation in the WTO. Governments now have a chance to make this new institution the strong catalyst for liberal trade which they have long said they wanted. They should seize the opportunity.
VOCABULARY
| 1. to liberalise trade | либерализировать торговлю; устранить ограничения |
| 2. North American Free Trade Agreement (NAFTA) | Североамериканское соглашение о свободной торговле (НАФТА) |
| 3. Mercosur | таможенный союз 4-х южноамериканских стран (Меркосур) |
| 4. Asia-Pacific Economic Cooperation (APEC) | Азиатскотихоокеанское экономическое сотрудничество |
| 5. «rules of origin» | правила происхождения (товара) |
| 6. outstanding negotiations | зд. незавершенные переговоры |
| 7. multilateral agreements | многосторонние соглашения |
| 8. ASEAN Association of South East Asia nations | Ассщциация государств Юго-Восточной Азии |
2. Напишите реферат и аннотаацию данного текста..
«World Trade»
Topics for discussion
1. International trade is the most obvious manifistation of a globalising world.
2. Free trade is a blessing.
3. So long as each country specialises in products in which it has a comparative advantage, it will gain from trade.
4. Comparative advantage can be created through subsidies and «strategic trade policy».
5. International differences in market regulation, enviromental protection and competition policy are often said to make trade «unfair».
6. «Regionalism» poses the greatest threat to free trade.
UNIT III. ECONOMIC AND MONETARY POLICY.
THE FUTURE OF THE STATE ECONOMIC POLICY
BEARING THE WEIGHT OF THE MARKET ?
1. Дайте ответы на следующие 1. Have the growing international flows
вопросы без предварительного of goods, services and money
чтения текста: diminished the power of the state ?
2. Дайте ответы на следующие 1. Does the growing world integration
вопросы после беглого просмотра reduce the freedom of governments
текста: to act ?
2. What are the instruments of
government involvement in the
economy ?
3. Прочитайте следующий текст и найдите ключевые слова и предложения в каждом абзаце:
BEARING THE WEIGHT OF THE MARKET ?
Most people in the advanced economies seem willing to accept, most of the time, that economic integration through international flows of trade and finance is a good thing. They acknowledge, for instance, that foreign investment can help poor economies to modernise, and that international competition helps to raise productivity and, at least in the aggregate, incomes as well.
Yet people also recognise the costs, such as unemployment or lower wages, that integration may force on particular groups at certain times. When weighing these costs of globalisation against the benefits, economists typically point to the role of government. Through taxes and public spending, they say, societies can use some of the extra income created by globalisation to cushion the losers. In principle, governments could go further, ensuring that everybody ended up better off. Which is very reassuring - unless it turns out that integration itself reduces the freedom of governments to act.
The view that globalisation makes it harder for governments to govern has come to be widely accepted. The basic idea is simple enough. Globalisation adds to the reach and power of the market: now even governments, not just firms and people, must bow down before the new master of worldwide competition.
A government might want to prohibit dangerous or undesirable working practices, for instance. But if it did, the affected industries might move abroad or shut down, because the new regulation could put domestic firms at a disadvantage in competition with foreign producers. Or suppose the government wants to raise taxes and spending. However popular more public spending may be with voters, the market might well forbid it. In the new global economy, people and firms can flee to other tax jurisdictions rather than paying an onerous tax.
Governments do not even have their former freedom to design their own social policies, the argument continues. The financial markets now sit as judge; if they deem that a new national health-care scheme or a massive education reform will prove too costly, they will punish the country with higher interest rates or a collapsing currency. In this way global market forces not only rule out the kind of compensation to losers that would make globalisation easier to live with, they also seem to challenge democracy itself.
If this thinking were correct, there would be good reason to oppose further globalisation, or to regret that the process has gone as far as it has. But it is not correct. In part it is muddled and in part it is simply wrong.
New thinking
During the 1980s, and especially since the collapse of the Soviet empire at the end of the decade, governments have changed the way they think about the role of the state. The failure of communism rattled faith even in far milder forms of socialism.
Governments had also learned from experience: evidence down the years suggested that ambitious economic intervention was often unsuccessful. Politicians in rich and poor countries alike, regardless of whether they were of “the left” or “the right”, began calling for lower taxes and public spending, for lighter regulation of industry, for privatisation of state-owned enterprises, and in general for their economies to be given greater “flexibility”.
In other words, governments have freely chosen to give market forces more sway, in the hope that this will raise living standards. It is odd therefore to say that the global economy has seized power from the state - and it is plain wrong to say that democratic rights have been trampled on.
Many would argue, however, that things are not so simple. Having started to liberalise their economies, governments were left with less power than they had expected. And having surrendered more control than they meant to, politicians found they could not go back. As a result, according to this view, globalisation is running out of control.
Governments themselves have done a lot to foster this idea. Nowadays no statement on economic policy is complete, it seems, without a declaration of impotence which says, in effect, “Our plans reflect not what we would like to do, but what the global market requires us to do.” Advancing technology adds to the sense of helplessness. Things that governments could once forbid or restrict -foreign borrowing; imports of computer software; pornography; political ideas - are now far harder to control because moderm communications have eroded the boundaries between nations.
It is true that when technology and liberalisation come together,governments can be taken by surprise. Anomalies appear, sometimes requiring further deregulation, at other times quiring new forms of regulation that previously mattered little. It is also true that governments have sometimes done the right things in the wrong order; liberalising cross-border flows of capital without updating regulation of the banking industry, for example, is one of the factors behind the recent series of financial crises in Asia.
One of the clearest examples of an apparently small measure of deregulation having larger consequences was Britain’s abolition of exchange controls in 1979. This let banks combine foreign capital and new financial technology, and thus compete more vigorously both with each other and with non-bank lenders, such as building societies. Soon, to enable these other lenders to fight back on equal terms, more rules had to be scrapped. This caused new problems - and so the process went on, until the rules that separated banks and building societies had been entirely removed. This inadvertently radical deregulation, and the financial competition it engendered, was instrumental in Britain’s boom and bust of the late 1980s and early 1990s.
Even so, the view that governments today stand helpless before the gale of international market forces is a gross exaggeration. Certainly, it is often a useful idea for governments to take up - what more powerful argument could there be against those opposing any given change of policy than to say “we have no choice”? But, useful as the claim may be, the evidence shows that it is not in fact true.
Like Topsy
The best and simplest measure of a government’s involvement in the economy is public spending. In rich industrial countries this has followed a persistently upward trend since the latter part of the 19th century.
Public spending increased as a share of national income in the 40 years before the first world war, a time when the world economy was arguably more open to trade and international flows of capital than it is today. Between 1918 and 1939, when barriers to trade and capital flows were high, spending as a share of national income rose further. Since the second world war, as economies have once more been opened to the outside world, the trend of rising expenditure has continued. The increase in the economic role of the state has been especially rapid since 1960.
True, many governments have tried hard to cut their outlays and their budget deficits of late. By and large, however, they have succeeded only in slowing, not reversing, the rate of growth of spending. Where budget deficits have been reduced, this has been done more by raising taxes than by curbing expenditure. On average, public spending in the advanced economies is bigger in relation to national income than it was in 1990. Even in the unusual case of Britain, after nearly 20 years of strenuous efforts to roll back the state, public spending accounts for about the same share of the national income as it did in 1980.