21st Century Trade Agreements - Implications for Long-Run Policy (Summary and Conclusions)

IV. Summary and Conclusions The analysis of various types of trade agreements shows that the current global trade regime substantially curtails the ability of countries to maintain control over various policy tools that traditionally have been deployed as part of long-run development paths. Under the WTO, despite the constraint on policy space, there remains considerable room to maneuver. Countries may legally raise and lower tariffs, provide tax-related export incentives such as drawbacks and deferrals within EPZs, impose performance requirements on investors and service providers, and employ domestic patent laws to prioritize information dissemination over incentives for invention. The WTO also makes room for countries to form bilateral and regional trade agreements under the GATT (Art. XXIV). Despite wide variation among Article XXIV agreements, policy space under North-South free trade agreements is the most constraining on the traditional industrial development toolkit. Among the countries to form bilateral and regional trade arrangements, the US and the EU are the most influential. Overwhelmingly, among both trade agreements and the global trade regime, the trend heads toward increased liberalization and decreased government intervention in the economy. At the same time, some types of agreements continue to make space for the policies aimed at industrial development, while others push for broader and deeper liberalization. Trade agreements with the EU, for example, retain much of the flexibility under the WTO in the areas of investment and intellectual property, and employ the same positive-list approach as the GATS. By contrast, the US imposes many additional disciplines on its trading partners—expanding patent protection, mandating investment liberalization, and employing a negative-list approach to services bindings. Over the past 15 years, trade regimes have formed around these principles and US trade policy has become more uniform. Meanwhile, EU trade policy varies much more greatly by trading partner, indicating a greater willingness to retain policy flexibility. Provided this trend continues, countries that are still developing in 30 years will have more opportunity to creatively use their policy space under an EU agreement than under an agreement with the US. Many S-S agreements are also established under Article XXIV; yet they often provide the greatest policy space among the agreements studied. This flexibility derives not from lacking affirmative trade disciplines but from using trade liberalization between developing countries to protect industries and promote growth regionally. Investment and intellectual property rules under the CAN provide the clearest example here. The CAN rules of origin establish protection for regional firms against extra-regional companies. In addition, the CAN explicitly protects traditional knowledge, tightens patentability requirements and makes room for local, non-patentable innovation. Still, some policy space remains under even the most restrictive trading schemes. The self-enforcing nature of dispute resolution, for example, allows smaller countries to undertake virtually any policy that does not economically injure its larger trading partners. Furthermore, to the extent the state is economically capable, it may invest heavily in public education, subsidize credit to certain industries, and build up domestic infrastructure. Using a method employed by developing and developed countries alike, policy makers may also provide administrative guidance—marketing the country, its location, natural resources, and workforce, for example—to investors and traders internationally. This technique may help a country to target an industry that would transfer technology or provide backward and forward linkages in the economy. This paper is far from the final word on this subject. Indeed, it may perhaps raise more questions than those that are answered. Each subject could be its own separate paper, pursuing in more depth the implied and actual flexibilities inherent in the global trading regime. For that reason, this paper aims only to give an overview of the policies available to countries today, and point out some significant differences between the various types of trade agreements. Going forward, interesting ideas for further research are numerous. A legal analysis of the dispute settlement cases under each regime would shed more light on the extent to which the rules against selective policies have actually been enforced. Political scientists might explore whether the divergence within international regimes, such as that of the EU-Latin American agreements and the EU-African agreements, is rooted in the geography of the trading partners, their development level, or other factors. From a policy perspective, it is our hope that negotiators and policymakers who have or are considering crafting longer-run development strategies can use this paper as a reference when deciding under which policy Just shy of 60 percent of the people regimes such development strategies on the planet live in poverty, measured would be most permissible. Just shy by the World Bank as less than $2.50 of 60 percent of the people on the per day. To raise the standard of living planet live in poverty, measured by for those people, governments seek to the World Bank as less than $2.50 put together long-term development per day. To raise the standard of strategies that deploy the policy inliving for those people, governments struments that have proven successful seek to put together long-term dein other settings. velopment strategies that deploy the policy instruments that have proven successful in other settings. This paper catalogues many of the policies deployed by successful developed and developing countries that over a 35+ year period tripled the average incomes of many countries such as the US, Japan, South Korea, Taiwan, and now China. We show that today, however, poorer nations have a more limited toolkit to engage in long-run development strategies, and that the trade arrangements they form will have an influence on the policies they will have available in the future.