A VoxEU.org Book. Tokyo: Asian Development Bank Institute; London: Centre for Economic Policy Research, 2013. viii, 169 leaves. (Figures, tables.) eBook: http://www.voxeu.org/sites/default/files/Future_World_Trading_System.pdf.
This book brings together abridged versions of papers presented at a conference held at the World Trade Organization (WTO), Geneva in March 2013. Following the editorial introduction and opening remarks by the then director-general of the WTO, Pascal Lamy, the book is thematically organized into four sections: supply chains and production networks, commercial and industrial policies, regional trade governance, and global trade governance.
The first section begins with a chapter by Baldwin (chapter 3) which argues for reforming world trade governance to accommodate the expansion of global production networks (GPNs). The case made here for a new “WTO 2.0” has, however, completely overlooked the pivotal role played by unilateral trade and investment liberalization and other supply-side reforms in East Asia’s success in reaping gains from joining GPNs. The proposed global initiatives could perhaps play a facilitating role at the margin, but solid unilateral action by individual countries is the key to achieving the expected outcome. Inomoto (chapter 4) illustrates how, in a context where trade within GPNs is expanding rapidly, the use of official (gross) trade statistics leads to inaccurate measurement of bilateral trade imbalances and presents alternative “value-added” estimates derived by combining official trade statistics and input-output (I-O) tables. These estimates need to be treated with caution because of the well-known limitations of the available I-O data and the underlying restrictive assumptions of the estimation method (Robert E. Yuskavage, “Perspectives from the US Bureau of Economic Analysis,” in Trade in Value Added: Developing New Measures of Cross-Border Trade, eds. Adithya Mattoo et al., Washington DC: World Bank, 2013, 331–335). The methodological issues aside, it is important to emphasize that the measurement of bilateral trade imbalances is rather inconsequential for assessing the developmental implications of GPNs. Trade theory postulates, and the East Asian experience vividly illustrates, that a single-minded focus on domestic value addition can hamper, rather than help, employment expansion (and hence poverty alleviation) through global economic integration. Based on resource allocation considerations derived from the principle of comparative advantage, one can make a strong case for the expansion of low-value-added export industries in a labour abundant economy. When a country imports capital-intensive inputs such as machinery, synthetic fibre and industrial chemicals with foreign exchange earned by exporting labour-intensive products such as garments, footwear and toys, it is implicitly substituting labour for capital in the production process. Xing (chapter 5) discusses challenge posed by the expansion of GPNs for delineating the impact of exchange rate changes on trade flows and proposes using value-added trade weights (rather than the conventional gross trade weight) for estimating the real exchange rate index. His prognosis is very clear, but the proposed remedy seems to have ignored the well-known empirical regularity that, for a given country, source country composition of parts and components imports differ considerably from the destination-country composition of its final (assembled) goods export. Wignaraja (chapter 6) examines the role of SME in GPNs based on a firm-level survey of selected East Asian countries. The chapter is informative, but unfortunately it has completely overlooked the role of multinational enterprises (MNEs), the key players of GPNs, in fostering the participation of SMEs. There is ample evidence that SMEs emerge de novo benefiting from the vendor development (sub-contracting) strategies of MNEs. The real policy challenge is not simply to design policies to promote SMEs, but to explore alternative pathways to facilitate forging links between MNEs and potential local entrepreneurs.
In section 2, Low and Tijala (chapter 7) provide a synthesis of trade and industry policy choices, with a clear warning of the risk of possible government failure. Evenett (chapter 8) provides a fascinating analysis of the proliferation of non-traditional (non-tariff) forms of trade protection in clear violation of WTO obligations during the years following the onset of the global financial crisis. The chapter makes a strong case for revising WTO rules with a view to averting “murky” protectionism. Pomfret and Pontines (chapter 9) find that countries have begun to rely increasingly on exchange rate policy as a trade policy instrument because of their trade liberalization commitments under free-trade agreements (FTAs). This finding points to the need for an exchange-rates coordination mechanism within FTA blocks.
Section 3 is by far the best part of the book. Kawai and Wignaraja (chapter 10) provide a stage-setting overview of the untoward consequences of the proliferation of overlapping FTAs and the related reform proposals. Chia (chapter 11) provides an interesting analytical narrative of the progress made, and challenges faced by, the Association of the South East Asian nations (ASEAN) in its move towards an economic community. Urata (chapter 12) critically examines the proposal for consolidating ASEAN’s FTAs with Australia, China, India, Japan and South Korea to form a mega FTA, the Regional Comprehensive Economic Partnership (RCEP). Dupont (chapter 13) provides a penetrating analysis of the viability of both RCEP and the proposed Trans-Pacific Strategic Economic Partnership (TPP) in light of the European experience. The evidence harnessed in these two chapters casts serious doubts on the viability of the proposed mega FTAs.
Among the contributions in the final section, Uyama (chapter 15) argues for placing emphasis on negotiating pluralistic agreements that specifically focus on a single trade issue (following the example of the Information Technology Agreement) as a solution to the present stalemate of the Doha Round trade negotiations. The remaining chapters break no new grounds and read like straight transcripts of impromptu conference presentations.
Notwithstanding the limitations noted, overall this is an important book that helps the fertilization of new ideas on a subject of contemporary policy relevance. The book is compact and generally well edited and organized, but its reader-friendliness could have been further improved by adding a list of abbreviations and acronyms, and a subject index.
Prema-chandra Athukorala
Australian National University, Canberra, Australia