Pros and Cons - Debbie Newman, Ben Woolgar 2014

Regional trade blocs over global free trade
Section D. Economics

In spite of the growth of the World Trade Organization, which now has over 150 members committed to liberalising international trade, pure global free trade is a far- off prospect. Meanwhile, regional trade blocs (groups of countries which offer each other greater trading benefits) are growing fast. The EU is the most prominent, but there are many others, including NAFTA (North America), ASEAN (Southeast Asia), Mercosur (much of Latin America) and ECOWAS (Economic Community of West African States). These vary in their extent; for instance, the EU is fully integrated, extending totally free movement of labour and capital to its members, while NAFTA is more limited and focuses on reducing goods tariffs.

Pros

[1] Regional trading blocs are perhaps a stop-gap to global free trade, but given the complexity and intricacy of global trading relations, true global free trade is still far off, so we are better off accepting and channelling energy into regional blocs, as these provide more immediate economic benefits.

[2] Given the enormous disparities between economies in terms of productive capacity and sophistication, exposing all countries to unbridled free trade will simply crush poorer countries, as Western and Chinese businesses rush into their markets and outprice them. Regional free trade offers a compromise between the need for expanding markets and the need for protection.

[3] Free trade cannot be unfettered completely, but requires institutions to promote it and occasionally limit it. These determine when countries are allowed limited protectionism to protect vital national interests (culture, public health or national security), but the WTO’s Dispute Settlement Body has primarily proved to be a tool of Western nations with expensive lawyers, allowing Western farm subsidies to continue, while forcing a Western concept of ’liberalisation’ on the poor. By contrast, the European Court of Justice has instituted genuine free trade, and only allowed very occasional limits on it.

[4] Free trade does not occur in a vacuum; it requires a complex architecture of associated institutions to manage it effectively, including common regulations on health and safety, and harmonised competition laws. The whole world is simply on much too grand a scale for such institutions, which can, by contrast, be more effective at the regional level.

Cons

[1] Rather than representing a step en route to total free trade, the setting up of regional blocs entrenches the regional system. Regional blocs tend to put up large external tariffs on goods from outside the region, and so actually reduce the likelihood of global free trade and undermine the WTO’s objectives.

[2] Free trade is not going to happen overnight. It is, of necessity, a gradual process of barrier reduction. States can retain transitional protectionist measures as they grow, preventing the shock caused by foreign entry into their markets, while ultimately moving towards free trade.

[3] There are problems with the WTO Dispute Settlement Body mechanism, but these can be fixed; for instance, by having a more representative panel of experts sitting in judgement. Creating free trade in a narrow set of countries, even if it is more ’complete’, ultimately has less of a net impact.

[4] Such managing institutions are far from necessary. Much harmonisation occurs simply because of the free market system, while competition rules are an unnecessary addition to the basic process of allowing goods to move freely.

Possible motions

This House prefers the WTO to the EU and NAFTA.

This House believes that regional trade blocs are better than global free trade.

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