Literature review
The effects of trade liberalization and its effect on productivity and economic growth are a heated debated among modern-day economics (Stiglitz, 2006). Over the years, trade agreements and trade liberalization have built a reputation of content and animosity among economists: from the impact of trade liberalization on the environment, and the disguise of tariffs as disguise for environmental protection (Harold, Runge, & University of Minnesota, 1993) to growing inequality and disparities in agricultural production.
These disparities led in 1995, to the Uruguay negotiation rounds that resulted in the creation of the World Trade Organization (WTO). At its core, the WTO it aimed to address the limitations in market access and subsequent discriminatory trading policies. The WTO’s non-discriminatory principles meant that each country would treat all others equally under the principle of national treatment (Stiglitz, 2006), both foreign and domestic producers would be treated the same, and be subjected to the same rules, markets and regulations.
Supporting literature on the benefits of trade liberalization models a scenario where a 50% decrease in agricultural subsidies, tariffs and OECD support on agriculture would result in an overall expansion of agricultural markets. Furthermore, countries involved would gain continuous access to other markets outside their regions. Similarly, economies of scale would have opportunities to be fully employed and thus, maximized (Meijil & Tongeren, 2004) and global trade would see an increase of 12% in the short run, compared to a 15% in the long run (Meijil & Tongeren, 2004). Effective trade liberalization would emphasize the different strengths and weaknesses of the countries involved led as well as their comparative advantage and the way they should determine what to export. (Stiglitz, 2006)
The drive for securing markets and liberalization of economies led to the successor of the Uruguay Rounds, the Doha Development Rounds (DDA) in 2001(Cornish & Fernandez, 2005. Like its predecessor, the DDA aimed to place strong emphasis in the role of international trade in the promotion of economic development, poverty alleviation and the creation of a fair and market- oriented agricultural trade system (Perez del Castillo, Gifford, Josling, Moehler, & Regunaga, 2009). At its simplest, it would grant greater access to the markets and eliminate preferential trading agreements. Its supporters hoped that new rules and commitments would encourage countries to a less trade-distorting mechanisms, further progress in export completion and domestic support for local industries (Brink, Orden, Blandford, & Joslin, 2011). Supporting literature on this issue affirms that trade liberalization has a positive effect on global trade flows, that in turn, could increase a country’s welfare. An agreement on agricultural trade policies would reduce the legal and economic implications of the countries involved (Brink, Orden, Blandford, & Joslin, 2011).
Lowering trading barriers and tariffs would, in the long run, yield positive results in the African, European and Asian regions. From boosting competition through improved markets and access to suppliers to an increase in Global income between 210 billion euros for partial liberation, to 670 billion euros for a full liberalization scenario (Meijil & Tongeren, 2002). Overall, trade liberalization will lead to an expansion in the agricultural market and service sectors would expand, because it would grant access to more markets. Even if in the short-term economies of scale would be drawing resources from industrial sectors and shrinking, in the long run it would still magnify opportunities for further specialization (Van Berkum, S., Rutten, M., Wijnands, J., & Verhoog, D.,2014).
Among those beneficiaries, we find the Netherlands. As a trade-oriented economy, the lower country could see a fair share of the world’s welfare gains (Van Berkum, Rutten, Wijnands, & Verhoog, 2014). Further economic liberalization would translate for the Netherlands an increase in the National Income by 2 % in 2027 (Meijil & Tongeren, 2002) and a sizable increase in export values, with both the service and food industries being at the top. As the manufacturing industries and agriculture would see an increase in international competition, these economic sectors would also experience greater exposure to markets outside the European Union (EU).
In a similar scenario, even if some economist argues that trade could damage America’s welfare and global competition (Lawrence & Edwards, 2012). Overall, a successful conclusion of the Doha Rounds would help the United States to create more jobs and increase is market share at the global level. Domestically, the United States could see an increase in both its merchandise and services (Lawrence & Edwards, 2012). Simultaneously an increase in American exports and imports would lead in the long run to more prosperous American businesses and farmers alike, from higher wages to an increase in productivity and better access to manufactured goods.
As a result, deeper economic cooperation among these two historical partners could yield positive returns in the long run. Given that the EU (including the Netherlands)- and the US together, accounts for over the half of the world’s population, an increase in global trade and investments it would in turn reduce trading costs among both countries and the overall convergence of both economies. To illustrate this in a trading scenario where trading barriers would be decreased by 25% and a 75% decrease in manufacturing would boost not only GDP, but also an increase both imports and exports from the US and the Netherlands (Van Berkum, Rutten, Wijnands, & Verhoog, 2014). The following research takes a look at this historical partnership and the reaping benefits of improved, closer agriculture trading relationships after the DDA.
Reference list:
Bhandari, S., & Klaphake, J. (2011). U.S trade policy and the Doha rounds negotiations. Ritsumeikan ann review of International Studies, 10, 81-86.
Brink, L., Orden, D., Blandford, D., & Joslin, T. (2011). The WTO disciplines on domestic support. International Food Policy Research Institute (IFPRI) Research brief, (16), 23-58. doi:10.1017/cbo9780511794179.003
Cornish, G. A., & Fernandez, S. (2005). Agricultural trade liberalization: Implications for irrigated agriculture. FAO issue paper 5, 1-3,11-23.
Harold, C., Runge, C. F., & University of Minnesota. (1993). GATT and the environment: Policy research needs. St. Paul, MN: Dept. of Agricultural and Applied Economics, University of Minnesota.
Lawrence, R. Z., & Edwards, L. (2012). Shattering the myths about U.S. trade policy. Harvard Business Review, 4-11.
Meijil, H. V., & Tongeren, F. V. (2004). Economic implications of trade liberalization under the Doha Round.
Perez del Castillo, C., Gifford, M., Josling, T., Moehler, R., & Regunaga, M. (2009). The Doha round and alternative options for creating a fair and market-oriented agricultural trade system. IPC position paper: Trade Negotiations Policy Series.
Stiglitz, J. E. (2006). Making trade fair. In Making globalization work (pp. 77-84). New York, NY: W.W. Norton & Co. Francois, J., Dr.,
Van Mejil, H., Dr., & Van Tongeren, F., Dr. (2002, December). Economic benefits of the Doha round for The Netherlands. Retrieved September 26, 2016, from https://www.gtap.agecon.purdue.edu/resources/download/1255.pdf
Van Berkum, S., Rutten, M., Wijnands, J., & Verhoog, D. (2014, July). Effects of an EU-US trade agreement on the Dutch agro-food … Retrieved September 26, 2016, from http://edepot.wur.nl/311349