Trade Policy

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Globalisation is not an inevitable process: during the Great Depression, after decades of trade liberalisation, nations descended into rounds of tariff escalation. Policy is therefore important not only in shaping the response to globalisation but also in influencing its future pace and direction. We seek to understand the causes and consequences of trade policy, including the role of political economy and prospects for future developments. The world has experienced a marked tendency toward international integration since the early 1990s, the main vehicle being the formation of regional trade agreements (RTAs). Potential gains from these agreements stem from resources flowing to more productive uses, lower consumer prices and increased foreign competition. However, not all types of liberalisation guarantee gains from trade. One key issue is the impact of liberalisation in the presence of existing market imperfections, which might be exacerbated. Another issue is the potential for trade diversion, or whether production shifts from efficient external suppliers to inefficient members.

Research at the CEP has examined international trade as a policy tool to address the misallocation of resources created by imperfect markets (Discussion Paper No 1130). In such markets, some firms over-produce while others under-produce, and opening up to intense foreign competition can correct these misallocations. When world markets are less competitive, gains from trade may still exist, but trade may need to be supplemented by domestic policies to bring gains.

CEP research has also studied how the ASEAN Free Trade Agreement has affected trade with non-members and external tariffs "facing non-members" (Discussion Paper No 930 published in Costs and Benefits of Economics Integration in Asia). There is no evidence that preferential liberalisation has led to lower import growth from non-members; moreover, preferential liberalisation within ASEAN also promotes external tariff liberalisation. Similar effects are observed in Latin America (Discussion Paper No 868, published in the Quarterly Journal of Economics).

Multilateral liberalisation also shapes future preferential liberalisation. CEP research finds that the goods whose imports the United States negotiated the largest MFN tariff reductions during the Uruguay Round of the GATT (1986-1994) were also the goods introduced more frequently in subsequent RTAs (Discussion Paper No 973). Hence, successful multilateralism seems at least partly responsible for the current wave of regionalism.

The CEP's research is often featured in international news coverage and is influential in informing public debate. Some recent coverage discussing work of the Trade Policy group include:

• China's Mercantilist Subsidies, Wall Street Journal
  (link: http://www.fabricedefever.com/pdf/WSJ%20China%20Mercantilist%20Subsidies.pdf)
• ETSG 2012 Leuven Fourteenth Conference Chair Jacquemin Prize
  (link: http://cep.lse.ac.uk/_new/news/year.asp?yyyy=2012#3274)

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These and related topics have been Studies by several recent CEP articles:

CEP Discussion Paper
On the Measurement of Trade Costs: Direct vs. Indirect Approaches to Quantifying Standards and Technical Regulations
Natalie  Chen,  Dennis  Novy,  September 2012
Paper No' CEPDP1164: Read Abstract | Full paper

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CEP Discussion Paper
Capital Controls or Exchange Rate Policy? A Pecuniary Externality Perspective
Gianluca  Benigno,  Huigang  Chen,  Christopher  Otrok,  Alessandro  Rebucci,  Eric R.  Young,  August 2012
Paper No' CEPDP1160: Read Abstract | Full paper

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CEP Discussion Paper
The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition
Swati  Dhingra,  John  Morrow,  February 2012
Paper No' CEPDP1130: Read Abstract | Full paper

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CEP Discussion Paper
Preferential Trade Agreements and the Labor Market
Emanuel  Ornelas,  January 2012
Paper No' CEPDP1117: Read Abstract | Full paper

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CEP Discussion Paper
Is the WTO Article XXIV Bad?
Monika  Mrázová,  David  Vines,  Ben  Zissimos,  November 2010
Paper No' CEPDP1021: Read Abstract | Full paper

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CEP Discussion Paper
Sequential Exporting
Facundo  Albornoz,  Hector  Calvo-Pardo,  Gregory  Corcos,  Emanuel  Ornelas,  March 2010
Paper No' CEPDP0974: Read Abstract | Full paper

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CEP Discussion Paper
The 'Emulator Effect' of the Uruguay Round on US Regionalism.
Marco  Fugazza,  Frédéric  Robert-Nicoud,  March 2010
Paper No' CEPDP0973: Read Abstract | Full paper

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CEP Discussion Paper
Regional Trade Agreements
Caroline  Freund,  Emanuel  Ornelas,  December 2009
Paper No' CEPDP0961: Read Abstract | Full paper

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CEP Discussion Paper
The ASEAN Free Trade Agreement: Impact on Trade Flows and External Trade Barriers
Hector  Calvo-Pardo,  Caroline  Freund,  Emanuel  Ornelas,  May 2009
Paper No' CEPDP0930: Read Abstract | Full paper

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CEP Discussion Paper
International Trade Integration: A Disaggregated Approach
Natalie  Chen,  Dennis  Novy,  January 2009
Paper No' CEPDP0908: Read Abstract | Full paper

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CEP Discussion Paper
Protection and International Sourcing
Emanuel  Ornelas,  John L.  Turner,  December 2008
Paper No' CEPDP0900: Read Abstract | Full paper

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