More Free Trade Across the North Atlantic? Part II

By | October 18, 2021

A third question concerns areas that have traditionally been outside trade policy. An example is trade in services . This can be education, transport, banking, shipping and insurance. International trade in services has increased sharply in recent years. There is much disagreement about how trade in services should be regulated in international agreements. Similarly, there is disagreement about how international investments should be regulated. Should American companies be able to invest on an equal footing with European companies in the EU?

A fourth question concerns patents. Inventors who make a profitable discovery can patent the invention and obtain the exclusive right to use it in production. Patents are national. But foreigners are allowed to patent on equal terms with domestic inventors. This is determined through agreements in the WTO. But what should be patentable? Should it be allowed to patent genetically modified plants and animals?

5: Free trade agreements go further than the WTO

Many free trade agreements go further than WTO regulations in reducing tariffs. But more importantly, they also regulate issues that are not regulated through the WTO. In the EU, for example, there is a common agricultural policy, common rules for goods, equal competition and investment rules and a common patent policy. There is also a common labor market.

Figure 2 shows that the number of free trade agreements has increased sharply over time, especially since the WTO was established in 1995. This partly indicates that the world has become more globalized . With increasing trade and more international capital flows, there has been a need for more regulations and international regulations.
In world trade, trade in intermediate goods is increasing – such as sub-components of a larger finished product. When a German car is sold in Norway, only parts of the car are produced in Germany. The German car company will often have bought car parts from many countries and even have production of parts in several countries.

International investment has increased sharply in scope; Among other things, the Norwegian Petroleum Fund invests in many countries – both short- and long-term. But foreign direct investments (FDI) have also become commonplace. FDI means that a multinational company either establishes production in another country or acquires existing production activities abroad.

6: Will the WTO just be a base plank?

The sharp increase in free trade agreements indicates that the ambitions vary greatly between the WTO countries . Some countries want strong liberalization. Others want to continue to protect domestic production. Some countries want new areas of goods and services into the WTO. Other countries are opposed to new regulations. Countries that are at the forefront of research and develop new technology often want strict patent rules and protection of intellectual property rights.

Several countries want to be able to use technology developed in other countries without having to pay fees to patent owners. When the WTO has become a global organization of which most countries are members, the range between the countries’ interests becomes greater. It has therefore become more difficult to reach agreement on new agreements.

The emergence of free trade agreements may thus mean that the WTO only becomes a base for world trade, at the same time as most countries have free trade agreements with their most important trading partners. TTIP could be such an agreement.

The United States is in similar negotiations with Asian countries for a comprehensive free trade agreement with these – TPP , Trans-Pacific Partnership . Similarly, the EU has a number of free trade agreements. The EEA Agreement is such an agreement. But the EU also has free trade agreements with a number of other countries, and more are being negotiated. A free trade agreement between the EU and Canada has been negotiated and is awaiting final approval by political bodies. It is estimated that about half of world trade will be regulated by free trade agreements and not the WTO agreement on all planned free trade agreements being finalized.

7: Inside or outside of free trade agreements

Free trade agreements reduce trade barriers between the contracting countries more than what follows from WTO regulations. It will normally increase trading because:

  • Countries that are part of the agreement find it easier and cheaper to buy from each other. With TTIP, Europeans can buy more American cars. Americans can enjoy me cheaper wine from France. This is the trade-creating effect of free trade agreements.
  • The contracting countries buy more from each other at the expense of other countries. Americans will find that European wine is getting cheaper. This means that they buy more European wine and European wine rather than American wine. But they also want to buy European wine instead of Chilean wine. Free trade between the EU and the US could therefore mean reduced trade between the US and third countries and between the EU and third countries. This is the trade-distorting

NUPI has calculated the effects of TTIP for Norwegian trade with the EU and the USA, a country located in North America according to Mysteryaround. The calculations suggest that Norwegian exports to the US can be reduced by about 0.8 per cent and that Norwegian exports to the EU can be reduced by 0.1 per cent. These are calculated effects of reduced tariffs, but also assumed reductions in non-tariff barriers to trade.

The effects of TTIP for Norway are thus quite modest . But the reductions will be unevenly distributed : for some goods the effects may be small, while for others they may be large.