Unilateral liberalisation in a multilateral world
Recent years have seen a great deal of trade liberalisation worldwide, particularly via the vehicles of regionalism and bilateralism. Certainly, the focus of analysts and policy economists has been firmly on these means of liberalisation. At the same time, however, many countries have also chosen to liberalise their international trade regimes unilaterally. Only recently have analysts begun to focus on unilateralism as a means of trade liberalisation: see Bhagwati (1999). But why would countries wish to choose this route to liberalise? Standard economic analysis can explain it for small countries (where the mystery is then why it is such a recent phenomenon) but for large countries it appears simply to sacrifice some “bargaining power”. This paper considers a number of reasons why unilateralism – meant here to indicate liberalisation as opposed to its more common current use indicating increased trade barriers (see Ethier (1998) – may be attractive to countries, both large and small. We first look at arguments in a standard, neoclassical setting before turning to political economy contexts. What effects, if any, does liberalisation through other multilateral means have on the incentive to liberalise unilaterally? We argue that one of the most important sets of reasons for unilateral reforms is precisely that it occurs in an environment of multilateral liberalisation. We discuss some theoretical reasons for this before looking briefly at two recent cases. The first is the APEC experience which we argue is best thought of as a qualified unilateralism and the second is recent experience in New Zealand where unilateralism has been a leading means of liberalisation. We suggest that unilateralism has been almost necessary for New Zealand, by virtue of the breadth of its microeconomic reform programme. A final section concludes.
Publisher: University of Otago
Series number: 102
Keywords: liberalisation; liberalise unilaterally; New Zealand
Research Type: Discussion Paper