October 4, 2017 / 10:23 AM / a year ago

Wider benefits seen in trade deals, challenging Trump-style mercantilism

GENEVA (Reuters) - International trade deals have real benefits for small firms’ competitiveness and regional integration, the International Trade Center (ITC) said on Wednesday in research challenging U.S. President Donald Trump’s “America First” policies.

FILE PHOTO: Trucks wait in a queue for border customs control to cross into U.S. at the World Trade Bridge in Nuevo Laredo, Mexico, November 2, 2016. REUTERS/Daniel Becerril/File Photo

ITC executive director Arancha Gonzalez said governments often failed to reflect the wider interests of business in trade negotiations, with a reluctance to see trade and investment as two sides of the same coin, and providing only soft support for consumer protection, gender equality, tax coordination and small firms.

“It’s a wake-up call for trade negotiators doing trade agreements to not apply a purely mercantilist lens but look at the wider implications of trade,” Gonzalez said.

Mercantilism is associated with attempts to use trade to gain economic advantage over other nations, epitomized by Trump’s policies to “make America great again”.

But the research by the ITC, a joint venture of the World Trade Organization and the United Nations which advises firms on how to export, found that broadening the scope of trade deals and deepening regional value chains had greater benefits.

“It’s less about sugar, steel and autos and more about the quality and the coherent way you would put together your trade part, your investment part, your inclusiveness part, with your sustainability part, with your fairness part,” Gonzalez said.

Each policy area newly covered by a trade deal increased a country’s integration into value chain trade by 2.5 percent, the study found.

Each additional policy area also narrowed the competitiveness gap between small and big firms by 1.25 percent, enough to lift small businesses in Tajikistan onto the same competitiveness footing as their small business counterparts in Estonia.

“The deeper your regional integration, the more value chain activity you generate, but the more you close the gap between your small and your large companies,” Gonzalez said.

Trade deals incorporating a chapter on investment were measurably more beneficial than agreements that focused purely on investment.

While bilateral investment treaties boosted imports within the value chain by 2.8 percent, they did nothing for exports. Trade deals with investment provisions lifted imports by 3.2 percent and exports by about 2 percent.

The study looked at 279 bilateral or multi-country trade arrangements covering 189 countries, and also found that regional trade integration was a major success factor for value chains, which are increasingly the route to global trade for small- and medium-sized enterprises.

Every region is host to regional value chains expect Africa, which was not sufficiently integrated by trade agreements to create regional critical mass, the study found, based on ITC’s database of 515 African firms.

Some of the strongest African economies were in North Africa but were weak compared to nearby European competitors, while South Africa - Africa’s best shot at anchoring a value chain - was far behind the leaders in other regions.

Reporting by Tom Miles; Editing by Richard Balmforth

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