Tuesday, September 16, 2008

Bilateral versus multilateral trade agreements

News sources everywhere seem to lament the collapse of the Doha round of trade talks because countries would then have to resort to bilateral or regional trade agreements. For any supporter of free trade this would be understandable, but if we acknowledge the short term havoc wreaked by rapid changes to trade flows that do not give workers and business owners time to adjust, a gradual and stepwise approach to the opening up of markets seems to be a more prudent way to go.

One of the major problems cited by those who favor a broad trade policy is the inconvenience of having to keep track of different rules for different countries. I would go about solving this by building a hash table of trade rules. Basically it would mean that given a country and a product as input, we would get the policies regarding that product as output. This would be a large table, but we would ask and receive only what we are interested in.

There's also the advantage of isolated policies having limited effects, rather than opening up to the entire world in one go. Maybe there is something I'm overlooking, but I don't consider the use of bilateral agreements to be an indicator of failure. I see great potential for reaping the benefits of free trade with less of the shock typically expected by any opening up.

The collapse of grand schemes for international trade deals is really a familiar scenario that just happens to be playing out on a macro level: a project's planners have decided that they have bitten off more than they can chew, and decide to reduce the scope of the project. Everyone does this, and while we may feel disappointed at envisioning the results of the grand project and having to instead settle for something less, we eventually resign ourselves to the reality that we are doing all that we can, and it is a whole lot better than nothing at all.

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