On 12 March, the Foreign and Commonwealth Office (FCO) supported a workshop on the new Transatlantic marketplace, at which Richard Baldwin (Graduate Institute for International Studies, Geneva, and CEPR) and Joseph Francois (WTO and CEPR) presented their study on ‘Transatlantic Free Trade: A Quantitative Assessment’. The study was funded by the FCO and undertaken in view of the ‘New Transatlantic Agenda’, adopted at the EU-US summit in Madrid, December 1995. This calls for significant steps forward in trade liberalization, encompassing bilateral reduction or elimination of tariffs on industrial products, accelerated implementation of Uruguay Round tariff reductions, and negotiated reduction of regulatory and other non-tariff barriers to trade. The study by Baldwin and Francois focuses primarily on the pattern of production and trade in North America and Western Europe, the pattern of import protection, and the likely trade and income effects of trade liberalization. The potential benefits are compared with the potential benefits of post-Uruguay Round most favoured nation (MNF)-based reductions in trade barriers. Their numerical assessments highlight the potential impact on both North Atlantic economies and their important regional trading partners.

The authors find that a narrow preferential agreement, leading only to the elimination of tariffs on industrial goods, would yield very little return. The greatest benefits for the EU, under preferential liberalization, are to be found under the deepest liberalization scenario. This includes agricultural liberalization, a broadening of the coverage of the plurilateral government procurement agreement, elimination of contingent protection through dumping remedies, and a reduction of trading costs through mutual recognition/harmonization of standards. The impact of an agreement on third countries vary, but one consistent qualitative result is that the negative impact on the Middle East and North Africa of a preferential agreement, is of a magnitude that is comparable in percentage terms to the gains for the EU.

Baldwin and Francois argue that, given the pattern of protection, it may prove difficult to achieve liberalization in ‘sensitive’ sectors through bilateral negotiations. In successful trade negotiations, the political cost of import liberalization (which is often the primary source of the potential economic gains) is balanced against the political gains of liberalization in export markets, although in economic terms both types of liberalization usually yield positive income and welfare effects. Given the combination of overlap in the regional definition of sensitive sectors and the pattern of low protection outside these sectors, achieving the balance required by the political calculus will be difficult. It appears more likely given the pattern of protection, that such liberalization could be achieved in a multilateral setting. This is because the potential political benefits of export market liberalization are available in developing country markets, which may offset the political ‘costs’ of further import liberalization within the EU and NAFTA.

Other meetings hosted by the Foreign and Commonwealth Office

Richard Portes (London Business School and CEPR) discussed the costs and benefits of European Union enlargement to the East, at a lunchtime discussion meeting on 20 March 1996.

At a joint meeting of CEPR, the Centre for Economic Performance (LSE) and the Foreign and Commonwealth on 2 July, Paul Krugman (Stanford University and CEPR) tackled the issue of globalization.