Richard Baldwin, President of the Centre for Economic Policy Research, has argued that “regional trade liberalisation [is sweeping] the globe like wildfire”. Preferential trade agreements (PTAs) have increased from 20 in 1990 to close to 300 today. This has become a key feature of the international trade policy landscape. The data show that Mr. Baldwin was
right.
Every country in the world is party to at least one PTA, with Mongolia the last to join the pack when it signed a deal with Japan in 2016. But Brexit, the U.S. withdrawal from the Trans-Pacific Partnership (TPP), and the renegotiation of the North American Free Trade.
Agreement (NAFTA) have all been disruptive for the world trade system. These PTAs are pursued by governments in hopes they will increase productivity and benefit consumers, promote economic policy reform, underpin supply chains, and benefit regional peace and security. By boosting trade among members (at the expense of non-members) they can have positive effects on growth. But they complicate trading operations, since they add an additional overlay on top of existing trade regimes.
Back in 2016, negotiations on the TPP, encompassing the U.S., Japan and 10 other countries in the Americas and the Asia Pacific region, and on the Trade and Investment Trans-Atlantic Partnership (TTIP) between the U.S. and the European Union, was all over the headlines. These agreements covered a significant percentage of total global trade.
By 2018, the situation had dramatically changed. The U.S. withdrew from TPP, suspended TTIP negotiations, launched the renegotiation of NAFTA and initiated the revision of some specific commitments of the Korea-U.S. PTA. Meanwhile, the TPP moved on — but without the U.S., dramatically shrinking its scope.
The UK post-Brexit repositioning requires undoing a very deep trade integration scheme with the EU and agreeing on new rules of engagement for a future economic partnership, while replicating or renegotiating some 40-odd PTAs that came with EU membership – not a small task. The UK is likely to deepen trade ties with the U.S. as a hedge.
As PTAs and regional agreements overtake globe-spanning trade regimes (the WTO), companies with multinational operations must begin to build into their operations more robustness to changing trade regimes.
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