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21st Century Trade Agreements:
Implications for Long-Run Development Policy

The Pardee Papers, No. 2, The Frederick S. Pardee Center for the Study of the Longer-Range Future, September 2008

By Rachel Denae Thrasher and Kevin P. Gallagher

A new study by GDAE researcher Kevin P. Gallagher and Rachel Denae Thrasher from Boston University shows that US trade agreements leave little room for poorer nations to deploy effective development policies for long-run diversification and development. The researchers find US agreements to be significantly more restrictive of such “policy space for development” than European agreements, the WTO agreement, and particularly the more development-friendly agreements between or among developing countries themselves.

“21st Century Trade Agreements: Implications for Long-Run Development Policy” was published by the Frederick S. Pardee Center for the Study of the Longer-Range Future. The study first presents the economic theory of trade and long-run growth and underscores the fact that traditional theories lose luster in the presence of the need for long-run dynamic comparative advantages and when market failures are rife.

The authors then present a "toolbox" of policies that have been deployed by developed and developing countries past and present to kick-start diversity and development with the hope of achieving long-run growth. Next, the study examines the extent to which rules under the World Trade Organization (WTO), trade agreements between the European Union (EU) and developing countries, trade agreements between the United States (US) and developing countries, and those among developing countries (South-South, or S-S, agreements) allow for the use of such policies.

The authors demonstrate that while S-S agreements provide ample policy space for industrial development, the WTO and EU agreements largely represent the middle of the spectrum in terms of constraining policy space choices. US agreements place considerably more constraints by binding parties both broadly and deeply in their trade commitments.  Unlike the WTO and agreements between the EU and developing countries, US agreements do not allow developing nations to:

  • deploy capital controls during a financial crisis, even though such measures have been shown to have buttressed nations like Chile from falling victim to financial crises in the past;
  • require that foreign investment come in the form of joint ventures.  Under the WTO, China, like Taiwan and Japan before them, continually require joint ventures to develop local supplier bases and build the productive capacities of domestic firms;
  • institute safeguards when domestic firms suffer from an unwarranted flood of goods imports or service providers;
  • exempt plant and life forms from the patenting process, like many South Asian nations due to protect biodiversity, indigenous rights, and the ability of domestic firms to develop new products;
  • permit early working or “Bolar” provisions on innovations so domestic firms can stand ready to enter a market when a patent expires.

This paper serves as an indispensable guide for developing-country negotiators seeking to preserve policy space for development as they negotiate bilateral and multilateral trade agreements.

Download the study here

For more on GDAE’s Globalization and Sustainable Development Program:

Frederick S. Pardee Center for the Study of the Longer-Range Future:

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