The opening of global markets — starting in 1947 with the first round of trade negotiations among 23 nations and the creation of the General Agreement on Tariffs and Trade (GATT), through the creation of the World Trade Organization in 1995 — caused international trade to explode and standards of living for nations rich and poor to soar.
Economic studies show that the opening of global markets since the end of World War II has added about $9,000 of additional wealth for the average American household. Developing nations have also gained from global trade. On average, poor countries that opened their markets to trade and investment have grown more than three times faster than those that kept their markets closed. No country has prospered by sealing itself off from global economy.
The Doha Round of multilateral trade negotiations was launched in 2001, two months after the 9/11 terrorist attacks in the United States. It sought to boost economic growth through trade liberalization for all nations, but particularly for developing nations.
The security dimension was real, because in addition to the projected economic benefits, past experience showed that as governments liberalized their trade regimes, they generally liberalized their political regimes. Adherence to an agreed set of trade rules and support for the W.T.O. dispute settlement mechanism encourages nondiscrimination, transparency and rule of law, which contribute to increased stability.
The Doha negotiations broke down in 2005 and have made little progress since. Trade commentators are declaring Doha dead and multilateral negotiations obsolete as governments increasingly have turned to negotiating bilateral and regional trade agreements that create conflicting rules and distort trade by creating trade preferences for the signatories at the expense of those that do not participate. There is legitimate concern that the proliferation of bilateral and regional trade agreements could render the W.T.O. irrelevant and destroy the enormous benefits we derive from our multilateral trading system.
What could bring the 159 W.T.O. members back to the table? Ironically, history demonstrates that the successful negotiation of a major regional trade agreement of high quality can provide the necessary catalyst.
In 1990, the Uruguay Round collapsed in Brussels. In June 1991 the United States, Mexico and Canada launched the negotiations of a North American Free Trade Agreement (Nafta). Fourteen months later negotiations were concluded. President George H.W. Bush signed the agreement in December 1992; President Clinton secured congressional approval of the agreement the following year.
By joining the economies of Canada, Mexico and the U.S., Nafta created a regional market of over 400 million people. It was the first comprehensive free trade agreement to join developed and developing nations, and it achieved broader and deeper trade liberalization than any prior trade agreement.
The world’s reaction was broad, deep and fast. In just a few months following the passage of the Nafta, trade negotiators returned to the bargaining table, completed the Uruguay Round, and created the W.T.O. to the enormous benefit of the global economy.
If we are to repeat the success of two decades ago, we will require an even greater catalyst: a regional trade agreement of such quality and scope that the rest of the world is galvanized.
The Trans-Atlantic Trade and Investment Partnership recently announced by the European Union and the United States could be that catalyst. That negotiation would involve roughly half the global economy. The negotiation need not be protracted. The E.U. and the U.S. each recently concludedfree trade agreements with South Korea that could serve as a template upon which to build.
The proposed Trans-Atlantic Partnership could have even more heft if Canada and Mexico were added — which makes sense, since Mexico already has a free trade agreement with the E.U., and Canada is in the final stages of negotiating one. Including them would avoid having different rules covering trade involving our two largest trading partners.
The global reaction to Nafta 20 years ago shows that “competitive liberalization” can be a powerful catalyst. When governments see others taking economic action that generates growth and stability, they do not want to be left out.
A broad, gold-standard trade agreement across the Atlantic could be such a catalyst for reigniting support for multilateral trade liberalization, bringing W.T.O. members back to the table to finish the Doha Round, which would give a real boost to the global economy.
It was done before with the Nafta, and it could be done again with the successful conclusion of the Trans-Atlantic Trade and Investment Partnership.
Carla A. Hills is Chief Executive Officer of Hills & Company International Consultants. She was the U.S. Trade Representative from 1989 to 1993 and the primary U.S. negotiator of the North American Free Trade Agreement.