Impacts on NAFTA Members of Multilateral and Regional Trading Arrangements and Initiatives and Harmonization of NAFTA's External Tariffs

We have used the Michigan Model of World Production and Trade to simulate the economic effects on the NAFTA member countries and other major trading countries/regions of a prospective new round of WTO multilateral trade negotiations, the variety of free trade agreements (FTAs) that the NAFTA members have negotiated or are considering, and the adoption of a system of common external tariffs by the NAFTA members. We estimate that an assumed reduction of post-Uruguay Round tariffs on agricultural and industrial products and services barriers by 33 percent in a new WTO trade round would increase world welfare by $613.0 billion, with gains of$177.3 billion for the United States, $13.5 billion for Canada,$6.5 billion for Mexico, and significant gains for all other industrialized and developing countries. If there were global free trade, world welfare would increase three-fold to $1.9 trillion and the country/region gains would be similarly larger. Regional FTAs such as an expansion of NAFTA to include Chile and a Western Hemisphere FTA would increase global and member-country welfare but much less than a new WTO multilateral trade round would. Separate bilateral FTAs negotiated or being considered by Canada, Mexico, and the United States would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some nonmember countries for both the regional and bilateral FTAs analyzed. If the NAFTA members were to adopt a system of common external tariffs to replace their existing differentiated external tariffs, a system based on trade weights would have less distortive effects on trade and welfare than a system based on simple averages or production-weighted tariffs.

Multilateral, Regional, and Bilateral Trade-Policy Options for the United States and Japan

We have used the Michigan Model of World Production and Trade to simulate the economic effects on the United States, Japan, and other major trading countries/regions of a prospective new round of WTO multilateral trade negotiations and a variety of regional/bilateral free trade agreements (FTAs) involving the United States and Japan. We estimate that an assumed reduction of post-Uruguay Round tariffs on agricultural and industrial products and services barriers by 33 percent in a new WTO trade round would increase world welfare by $613.0 billion, with gains of$177.3 billion for the United States, $123.7 billion for Japan, and significant gains for all other industrialized and developing countries/regions. If there were global free trade with all post-Uruguay Round trade barriers completely removed, world welfare would increase by$1.9 trillion, with gains of $537.2 billion (5.9 percent of GNP) for the United States and$374.8 billion (5.8 percent of GNP) for Japan. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare but much less so than a new WTO multilateral trade round would. Separate bilateral FTAs involving Japan with Singapore, Mexico, Chile, and Korea and the United States with Chile, Singapore, and Korea would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some nonmember countries for both the regional and bilateral FTAs analyzed. The welfare gains from multilateral trade liberalization are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.

Developing Countries' Stake in the Doha Round

In this paper we discuss the various aspects of the Doha Round of Multilateral Trade Negotiations in the WTO that offer potential benefits for developing countries. We then use the Michigan Model of World Production and Trade to simulate the economic effects on the major trading countries/regions of the reductions in tariffs, subsidies in agriculture, and barriers in services that may be negotiated in the Doha Round, as well as a variety of regional free trade agreements (FTAs). We estimate that an assumed reduction of post-Uruguay Round tariffs and other barriers on agricultural and industrial products and services by 33 percent in the Doha Round would increase world welfare by $686.4 billion, with significant gains for all industrialized and developing countries/regions. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare, but by much less than the Doha multilateral trade round. There would also be trade diversion and detrimental welfare effects on some nonmember countries for the FTAs analyzed. The welfare gains from multilateral trade liberalization are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.WTO, Trade Liberalization

The Effects of Multinational Production on Wages and Working Conditions in Developing Countries

This paper is designed to assess the empirical evidence regarding the effects of multinational production on wages and working conditions in developing countries. It is motivated by the controversies that have emerged, especially in the past decade or so, concerning whether or not multinational firms in developing countries are exploiting their workers by paying low wages and subjecting them to coercive, abusive, unhealthy, and unsafe conditions in the workplace. We begin by addressing the efforts and programs of social activist groups and universities and colleges involved in the "Anti-Sweatshop" Campaign in the United States, the social accountability of multinational firms, and the role of such international insti-tutions as the International Labor Organization and World Trade Organization in dealing with labor standards and trade. We then consider the conceptual aspects of the effects of foreign direct investment on wages in host countries and the effects of outsourcing, subcontracting, and other forms of fragmenta-tion by multinational firms. We note in particular that available theories yield ambiguous predictions for the effects of multinational production on wages, leaving the effects to be examined empirically. We therefore, in the final section of the paper, review the empirical evidence on multinational firm wages in developing countries, and the relationship between foreign direct investment and labor rights. This evi-dence indicates that multinational firms routinely pay higher wages and provide better working conditions than their local counterparts, and they are typically not attracted preferentially to countries with weak labor standards.