A New Trade Order
Article Summary and Author Biography
The post-1945 free-trade regime is giving way to an emerging "market access" regime that is more flexible about border barriers, but more demanding about "fair competition" policies and about access for investment. In this new commercial environment, free trade and protectionism are proving to be a false dichotomy. As corporations globalize and create elaborate commercial partnerships, governments have to create a new global framework and tools for managing world commerce. In the market access regime, there will be roles for expanded industry codes, bilateral, minilateral and regional bargaining all coordinated by a reformed General Agreement on Tariffs and Trade. The order of the day will be multilateralism from the bottom up.
This article is adapted from Peter E Cowhey and Jonathan D. Aronson, Managing the World Economy: The Consequences of Corporate Alliances, New York: Council on Foreign Relations, 1993. The authors are professors of international relations at the University of California, San Diego, and the University of Southern California, respectively.
A New Global Economic Order
IN THE EMERGING world economy the choice is no longer between free trade and protectionism. Governments are regulating in new ways, using measures that open markets to foreign competition and embrace national industrial policies simultaneously.
It is impossible today to sustain the traditional American arms-length relationship between business and government on which world trade rules rested after 1945. The redistribution of much economic power to Japan and Europe means that new styles of industrial organization-more intimate relations between governments and firms, as well as among firms- place increasing pressures on that longstanding American approach.
Corporations have long adapted to the new forms of government economic strategies by internationalizing their operations. The initial emergence of transnational corporations, and later of international corporate alliances, was often a political gesture to assuage local sensibilities about the national identity of businesses and to circumvent trade barriers. In many markets traditional free trade never really existed because of this corporate adaptation.
The cumulative impact of this kind of foreign investment is staggering. Foreign investment flows are only about 10 percent of the size of world trade flows each year, but intra-firm trade (for example, sales by Ford Europe to Ford U.S.A.) now accounts for up to an astonishing 40 percent of all U.S. trade. Investment now dictates much of the composition and direction of trade flows.
While the original political motivation for globalization remains, it has become secondary to broader economic imperatives. International corporate alliances represent grudging acknowledgment that few firms can independently bear the economic risks or command the spectrum of technological expertise necessary to win major world markets. Growing numbers of firms rely on diverse partnerships around the world for know-how, components and selected product offerings in order to compete at home and abroad. They are willing to invest heavily in new global infrastructures, such as the worldwide design networks of Ford and Boeing or the world trading networks of major stock exchanges, in order to support their businesses and alliances.
Rise of a "Market Access" Regime
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