An aerial view of flooded terraced rice fields in Yuannan, China

Some nations can be resistant to reducing trade tariffs on agriculture

The past year has been challenging for international trade policy. The UK voted to exit the European Union. Talks for an EU-US trade agreement stalled. The EU-Canada trade agreement was temporarily delayed. The new US administration withdrew from the Trans-Pacific Partnership.

The current era of globalisation arguably began with the establishment of the World Trade Organization (WTO) in 1995, aided by the market transition in former socialist states, the arrival of the internet and other technological advances, plus improvements in logistics and trade costs. Now, a backlash has emerged, with trade often wrongly blamed for labour dislocation that may be more rightfully attributed to structural and technological change.

We know that trade barriers constrain economic performance

Thus, it may not be surprising to see a growing incidence of protectionist measures in leading trading countries, accompanied by populist challenges to further trade liberalisation. Two years ago, three mega-regional trade accords were advancing; now only Asia’s Regional Comprehensive Economic Partnership appears on course to deliver results in the foreseeable future.

Yet, we know that trade barriers persist and constrain economic performance. Further trade liberalisation has the potential to promote gains via such channels as economies of scale and increased specialisation, innovation and international competition. Of the 100 largest country-to-country goods export corridors in 2015, only 56 are covered by a free-trade agreement or customs union.

Where comprehensive global deals and large-scale regional pacts are not politically feasible, bilateral or smaller-scale regional liberalisation may still provide a way forward. For countries like the US or UK, this may be an attractive way to liberalise while safeguarding some areas of national sovereignty and retaining some control over import competition.

Using such bilateral and regional approaches may even offer some negotiating advantages in the current political environment where consensus among the 164 members of the WTO can be extremely difficult to attain. Issues such as safeguarding the free flow of data, expanding protection for intellectual-property rights, liberalising agriculture or opening up market access in services may encounter stiff resistance. Regional and bilateral free-trade agreements can make such steps feasible, facilitating deals going well beyond the scope of current WTO agreements.

Services trade is of particular interest because services now account for roughly two-thirds of global gross domestic product and more than a fifth of total exports. However, in many countries, opening up services markets continues to lag behind negotiators' aspirations. Often, the relevant barriers lie behind the border, embedded in institutions that are resistant to change. Incremental change in smaller scale deals may prove acceptable where wholesale change is blocked.

Trade liberalisation has delivered significant progress in recent decades. But there is more work to be done. Agreements among smaller groupings of like-minded partners may prove a useful step on the road to larger-scale market openness and economic integration.

This research was first published on 6 March 2017.
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