Working Paper: CEPR ID: DP5775
Authors: Richard Baldwin
Abstract: This paper addresses the final steps to global free trade ? what they might look like, what sort of political economy forces might drive them, and what the WTO might do to guide them. Two facts form the point of departure: 1) Regionalism is here to stay; world trade is regulated by a motley assortment of unilateral, bilateral and multilateral trade agreements; 2) this motley assortment is not the best way to organise world trade. Moving to global duty-free trade will require a multilateralisation of regionalism. The paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals ? fuzzy, leaky trade blocs made up of fuzzy, leaky sub-blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the big-3 trade blocs, and leaky since some FTAs create free trade ?canals? linking the big-3 blocs). The paper then presents a novel political economy mechanism ? spaghetti bowls as building blocs ? whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO could do to help.
Keywords: domino effect; juggernaut effect; multilateralism; regionalism; RTB; unilateralism; trade
JEL Codes: F10; F13; F15; F2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multilateral trade negotiations (MTNs) (F13) | lower tariffs (F13) |
| exporters lobbying (F10) | lower tariffs (F13) |
| joining a preferential trade arrangement (PTA) (F15) | pressure on non-member nations to join (F55) |
| pressure on non-member nations to join (F55) | further trade liberalisation (F15) |
| success of nations like Japan and the Four Tigers (O57) | developing nations cut tariffs (F13) |