Trade Agreements Trade Liberalization

Policies that make an economy open to trade and investment with the rest of the world are necessary for sustainable economic growth. The evidence is clear. No country has experienced economic success in recent decades in the form of a significant increase in the standard of living of its population without being open to the rest of the world. In contrast, trade opening (with openness to foreign direct investment) has been an important element of East Asia`s economic success, where average import tariffs have fallen from 30% to 10% over the past 20 years. Recent empirical studies using variants of the trade severity model have shown that trade creation under preferential trade agreements generally outweighs trade diversion. A recent discussion paper by the Australian Productivity Commission (APC) (Adams et al., 2003) contrasts with these results. The APC study uses a standard gravity model supplemented by dummy variables for a number of individual preferential agreements. The study indicates that the majority of preferential trade agreements were realtant by balance during the sampling period (1970-1997). Based on the sum of the estimated coefficients of the intra- and extra-bloc indicators reported for each ATP, it was found, inter alia, that 12 of the 16 preferential agreements examined diverted more trade from non-members than they created between members. It is important that the 12 contain the major preferential trade agreements (EU, ASEAN and NAFTA).

Even in the absence of the PAF, Korea will benefit significantly from bilateral free trade agreements. If the Korea-U.S. free trade agreement is ratified, it will increase total Two-Way Korean trade by about $70 billion (16%). Korea would receive a similar amount ($63 billion) if the Japan-Korea Free Trade Agreement and the Korea-ASEAN Free Trade Agreement are concluded. The North American Free Trade Agreement (NAFTA) was signed by Canada, Mexico and the United States on December 17, 1992. It entered into force on 1 January 1994. The agreement eliminated tariffs on products traded between the three countries. One of the goals of NAFTA was to integrate Mexico into the advanced economies of the United States and Canada, in part because Mexico was seen as a lucrative new market for Canada and the United States.

We agree with almost all economists that multilateral liberalization under the auspices of the WTO is by far the first way in the global trading system. . . .

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