338 CHAPTER NiNE ■ InternatIonal Po lItI cal economy
In 2013, one- fifth of U.S. exports went to the EU, while the EU exported one- eighth
of its goods to the United States. The proposed Transatlantic Trade and Investment
Partnership (TTIP) is intended to reduce obstacles to trade and investment, such as
EU barriers to genet ically modified foods, and empower U.S. firms to sue in local Eu ro-
pean courts. Some Eu ro pe ans are concerned about granting more rights to U.S. firms,
which could lead to weakened worker protections, but some economists predict the
deal could result in economic gains equivalent to an extra $700 per year for each Eu ro-
pean family of four.^9 The negotiations continue.
t he Debate over regIonal anD PreferentIal
traDe agreements
Since 1990, the number of regional and preferential trade agreements has exploded from
roughly 50 in 1990 to nearly 400 in 2014, and another 200 are pending. With this
proliferation, three debates regarding regionalization of economics have emerged. First,
do regional trade agreements improve the economic welfare of their members through
trade creation, or is trade actually diverted and economic welfare reduced? With regional
trade agreements, some trade is created in goods produced efficiently relative to the
rest of the world. Trade is also diverted from efficient nonmembers because of the pref-
erences states grant to each other, and hence, state welfare is reduced.
Second, are regional trade agreements a stepping- stone or a stumbling block to
global trade arrangements? On the one hand, they clearly reduce the number of actors
in international negotiations and enhance competitiveness of some domestic industries,
making it easier to argue for liberalization. On the other hand, under regional trade
agreements, larger economies can impose their will and interest groups may find it easier
to lobby for their interests, inhibiting freer global trade. Economist Jagdish Bhagwati, a
prominent opponent of regional trade agreements, calls this patchwork of agreements
“termites in the trading system.”^10 Regional agreements make states less likely to agree to
global tariff cuts; freer trade may erode the narrow gains already won.
Third, does economic regionalization in broad areas of economic and social policy
enhance the position of labor and improve environmental arrangements? Or, does
economic regionalization force a downward pressure on wages and environmental
standards as countries and regions actively compete for trade and foreign direct invest-
ment? While this may not be an issue for most of the trade agreements, it is a critical
issue for the major agreements discussed above.
The economic challenges of the twenty- first century are actually challenges whose
origins we can trace to the last century. The issues of how best to achieve international
development and how to cope with economic crises in the era of globalization have
risen to the top of the agenda.