Transatlantic Free Trade Zone?

[lord of the mark]

Originally posted by Colon™
Ok, now that I have time to elaborate: free trade deals that are restricted in territorial extension are inherently worse than global free trade deals, and may even be worse than no free trade deals at all. Why? Because it may lead to trade diversion rather than trade expansion and this diversion may not favour those that produce a given good most efficiently.

Example: country A can buy hammers from country B and country C. It mostly chooses to buy from country B because they produce those hammers 20% more cheaply. Country A also raises an tariff of 30% to all imports of hammers.
After a while country A and country C decide they want a closer relationship and therefore negotiate a free trade deal that removes all tariffs on the imports of hammers from country C. This means country C is now 10% cheaper than country B and the result is that country B sees its exports of hammers fall, even though they're a more efficient producer.

That's trade diversion, and it makes a mockery of the principle that the most efficient producer should win out, no matter where it's located. Granted a transatlantic free trade zone would be somewhat less worse than a bilateral one, because it involves more producers, but it's still inferior to a global free trade zone. The WTO is dedicated to removing trade barriers world-wide. A transatlantic zone may be good mercantilistic politics but it's not good economics.

Not equivalent to mercantalism. A free trade area between country A and Country C at least leads to net benefits for both the citizens of County A and Country C, even if the costs to country B are greater and so the net cost benefit for all is negative. And of course depending on empirical facts, the benefits to county A and C may exceed the costs to country B (if the base case is something other than complete free trade) At present the global free trade is not a reality. Given that, Free trade agreements may be the second best, even from a global perspective, and are likely to be good for the participants.

[Colon™]

Not wholesale mercantilistism, but it certainly contains a strong mercantalistic edge to it, since such a bilateral deal benefits the participants at the expense of the outsiders (even though this may not be the intention).
Bilateral deals may not be 2nd best, exactly because they may lead to an net outcome that's worse than the prior situation, due to trade diversion. And if we assume participants are better off than previously, there will still be missed opportunities, which are also costs.

Considering diplomats have limited resources and time, it'd be far better to invest these in seeking after global deals that may only partly lower trade barriers, than it would be to invest in seeking after bilateral deals that may fully lower trade barriers - because global deals solely lead to creation of trade and not to diversion.

In the case of a NATO free trade zone, such substantial energies would have to be devoted in reconciling the Franco-American positions, that you might just as well do it for the purpose of getting the WTO-negotiations going again.

[Velociryx]

Colon....while what you say is certainly true from a globalist perspective, free trade between the US and EU alone would account for some 20 TRILLION dollars of the total global GDP. Offhand, I don't know what percentage that is of the whole, but I'm betting it's d@mned high, and as such, the "missed opportunities" would be more than offset by the *created* opportunities. Of course, as the "club" continued to grow, the whole cloth would only get stronger.

It would be one thing if you were talking about an exclusive arrangement that comprised only 5% of total global GDP, but that would certainly not be the case with such an alliance as the one proposed. I can't imagine that the missed opportunities would even begin to compare to the free and open markets the two groups would suddenly have access to.

-=Vel=-

[notyoueither]

Originally posted by lord of the mark

Its very complicated. The NAFTA panels generally supported Canada, but WTO panels supported the US position, and the legal questions about the various panels, who had authority, etc were rather complex IIUC. That it ended with a compromise was probably best for all concerned, but certain Canadians like to whine, on the presumption they are 100% right in a complex case. Since the compromise was implemented by a particular Canadian govt, I suspect many opinions about it are tied to internal Canadian politics, among other things.

Uhh, no.

To begin with, WTO have not generally agreed with the US position. WTO rulings have been mixed.

Meanwhile, other panels that have included Americans have unanimously agreed that the American case is baseless.

And actually, it really is pretty simple. Most lumber in certain provinces (including BC, our largest producer) is publically owned. The province auctions off rights to certain pieces of land for logging rights and also charges a rate per unit when the trees are actually cut.

The Americans argue that the fees charged are too low. We say bull****, and both NAFTA and WTO rulings have generally gone our way. The rates are low because of basic economics. Supply and demand. There are oceans of timber in Canada, of course the fees charged for any given cut are low compared to those in a state that could be fit in a single stand of a Canadian forest.

Anyways, what has Canadians from coast to coast in a nose-out-of-joint state is that the US administration makes noises about ignoring NAFTA panel rulings whenever they don't agree with them. We win a ruling, we are told to come back to the negotiating table. Negotiate what? We should negotiate away the natural advantages we enjoy in an industry when it might be a lonely example of an industry where we have an advantage due to geography?

The spectacle of an American administration saying that NAFTA panel rulings mean squat leads many Canadians to have negative feelings about the prospects for 'free trade' with the US. And yes, it is political. There are now two significant parties campaigning on renegotiating or getting out of NAFTA. However, even supporters of free trade are pissed at how softwood has been handeled by your government(s).

The view is that America talks a good game of free trade, but when push comes to shove you can't walk the walk.

[TCO]

Originally posted by DinoDoc
They subsidize thier lumber and are pissed we slapped a tarrif on it.

Read some Milton Freedman, you mercantilist, Democrat butt****. Who cares if they subsidize dump, pay for us to use it whatever. Let the buyer decide. THat is free enterprise. You commie.

[notyoueither]

Originally posted by Arrian
That really is a big deal up there, eh? I know precisely nothing about it (other than you all seem pissed about it).

-Arrian

It's been going off and on for 25 years and it makes America look hypocritical on the topic of free trade.

It is highly annoying and worrying given that we signed onto a deal that has seen us make large adjustments to participate in continental free trade.

[TCO]

Colon any freeing of trade regardless of preferentiallity is beneficial to the overall system.

[VetLegion]

Originally posted by Colon™
Not wholesale mercantilistism, but it certainly contains a strong mercantalistic edge to it, since such a bilateral deal benefits the participants at the expense of the outsiders (even though this may not be the intention).
Bilateral deals may not be 2nd best, exactly because they may lead to an net outcome that's worse than the prior situation, due to trade diversion.

No. Net outcome can't possibly be worse. It's impossible to achieve a worse outcome by reducing barriers to trade, and it is completely irrelevant between whom the barriers are reduced, their relative size, and so on.

I don't know where you got "trade diversion" from, but it's got nothing to do with theory or practice of international trade

[TCO]

I guess duckey thinks we should raise all trade barriers to be equal to the highest level we have with any company and that will improve the situation...

[LordShiva]

Originally posted by VetLegion
I don't know where you got "trade diversion" from, but it's got nothing to do with theory or practice of international trade

It does.

Originally posted by TCO
Colon any freeing of trade regardless of preferentiallity is beneficial to the overall system.

Not in all cases - the additional benefit from the removal of tarriffs may be outweighed by the loss of tarriff revenue that the importing country enjoyed before trade diversion to the less efficient exporter.

[Colon™]

Originally posted by Velociryx
Colon....while what you say is certainly true from a globalist perspective, free trade between the US and EU alone would account for some 20 TRILLION dollars of the total global GDP. Offhand, I don't know what percentage that is of the whole, but I'm betting it's d@mned high, and as such, the "missed opportunities" would be more than offset by the *created* opportunities. Of course, as the "club" continued to grow, the whole cloth would only get stronger.

It would be one thing if you were talking about an exclusive arrangement that comprised only 5% of total global GDP, but that would certainly not be the case with such an alliance as the one proposed. I can't imagine that the missed opportunities would even begin to compare to the free and open markets the two groups would suddenly have access to.

-=Vel=-

The EU and the US account for half to less than half of global output.

I don't think you quite understand the concept of missed opportunities. They by definition cannot be "made up".

As I already said, I agree that the risk of trade diversion is mitigated with such a large trade zone. However, creating a NATO free trade zone would require tremendous diplomatic effort. If you're going to invest such efforts, they would be better spent on a WTO deal that may lower trade barriers for a small amount, than they would be on a NATO deal that lowers trade barriers for a bigger amount.

Colon any freeing of trade regardless of preferentiallity is beneficial to the overall system.

Nope. Suppose you have a situation in which the imports of all other countries are taxed equally, then the the country that produces most efficiently, and hence, most cheaply, will win out. If then you sign a free trade deal with one country, but not the rest (including the most efficient producer), the level playing field is removed, which implies the most efficient producer may not win out.

"This is in essence what happens in the case of trade diversion. Trade diversion occurs when a FTA shifts imports from a more efficient supplier to a less efficient supplier which by itself causes a reduction in national welfare. Although the economy also benefits through the elimination of the domestic distortions, if these benefits are smaller than the supplier efficiency loss, then national welfare falls. In general, the only way to assure that trade liberalization will lead to efficiency improvements is if a country removes its trade barriers against all countries."

(FTA = Free Trade Area)

http://internationalecon.com/v1.0/ch110/110c030.html

No. Net outcome can't possibly be worse. It's impossible to achieve a worse outcome by reducing barriers to trade, and it is completely irrelevant between whom the barriers are reduced, their relative size, and so on.

I don't know where you got "trade diversion" from, but it's got nothing to do with theory or practice of international trade

The concept of trade creation vs trade diversion is very real. It's been observed in the case of the European Community for instance, that whenever a country joined the EC a lot of additional trade with fellow EC-countries coincided with a fall in trade with non-EC countries. What was taking place was to a large extent trade diversion, rather than trade creation.

[Odin]

Originally posted by TCO


Read some Milton Freedman, you mercantilist, Democrat butt****. Who cares if they subsidize dump, pay for us to use it whatever. Let the buyer decide. THat is free enterprise. You commie.

Milton Friedman is an idiot.

[dannubis]

Originally posted by Drake Tungsten

Europe should be working with the asians instead of "against" them

The Asian respect for the niceties of trade will have you running back to the evil Yanks in no time...

pfft, I piss in your general direction

[LordShiva]

Originally posted by Odin
Milton Friedman is an idiot.

QFFalseness

[KrazyHorse]

Actually, he is an idiot.