But a way forward may be foreshadowed by the Comment above about the China-ASEAN agreement and other deals with ASEAN. Are such regional FTAs in fact less discriminatory in the short term, by diffusing trade diversion throughout the region? And more conducive to connecting up the regions and their constituent states into a new multilateral system?

In theory, I guess so. In practice, it depends on what goes into the texts of the regional agreements. And I have heard that they tend to ‘least common denominator’, ie they extend basic liberalisations found among existing bilateral partners to the other partners brought into the regional agreement, but the better liberalisations found between bilateral partners remain for their benefit but not those of other partners.

Something similar apparently has happened with investment arbitration in the new ASEAN-Australia-NZ FTA (trying saying the acronym: “AANZFTA”). This protection for investors arises between say ASEAN investors and Australia, but it won’t apply between NZ investors and Australia (and vice versa) due to a governmental side agreement – because Australia and NZ are still negotiating a new Investment Chapter for their longstanding bilateral CER agreement.

That last example suggests, however, that the solution is unlikely simply to be regional agreements that just comprehensively ‘trade up’ to the best investor protections or liberalisations that happen to exist between existing bilateral partners. Policymakers and citizens are more conscious nowadays about the non-economic as well as economic issues involved, especially given the massive market failures that have poisoned world markets at vast expense to current and future generations of taxpayers. It is not enough for economists to just assume or even say: “those are completely different markets and regulatory issues, there’s still nothing wrong with prioritising self-interested exchange for overall mutual gain”. We should be more realistic about the parameters and assumptions embedded in economic models, and so be more prepared to build in – even with ‘free’ trade agreements – additional safeguards to excessively self-interested behaviour.

So, as I’ve suggested before on this blog, at least allow foreign investors to ‘do the right thing’ and choose investor-state arbitration rules tailored to address greater public interests (compared to rules nowadays used for arbitration purely between commercial entities), which are included in bilateral or regional FTAs. Or we allow ministers or officials from FTA partners to generate joint standards on food safety (as already in Australia/NZ) or consumer product safety generally, and indeed ‘trade up’ to better consumer protection in each country (eg by Australia joining Japan, China, the EU, the US and soon Canada in requiring manufacturers and importers to notify regulators of serious product-related injuries).

Sometimes this will be mean acting even if economists are unsure about quantifiable net benefits from introducing such measures. But it may be the only way to a sustainable new world trade order, balancing legitimacy and free markets forces.