Author Archives: jdingel

Happy Birthday, GATT!

Doug Irwin celebrates the GATT’s 60th birthday (ungated version):

Sixty years ago this week (April 10, 1947) at the Palais des Nations in Geneva, Switzerland, representatives from 23 nations opened a conference that attracted little attention at the time, but had far-reaching consequences for the world economy. The conferees met to negotiate tariff reductions and finalize the text of a General Agreement on Tariffs and Trade (GATT)…

The origins of the GATT can be found in the economic disaster of the interwar period… Although the world economy recovered slowly from the depression, the spread of high tariffs, import quotas, discriminatory practices and foreign exchange restrictions meant that world trade remained stagnant and compartmentalized throughout the 1930s.

The tragic economic and political consequences of that “low dishonest decade” spurred some officials to think about a new economic framework. Marked by the bitter experience after World War I, Cordell Hull — FDR’s Secretary of State — came to believe that “unhampered trade dovetail[s] with peace; high tariffs, trade barriers and unfair economic competition, with war.”…

[In the 1947 GATT meetings, the] U.S. insisted that the most-favored nation (MFN) clause — ensuring nondiscrimination in trade — be the Article I cornerstone of the GATT because it wanted to prevent the spread of Imperial preferences that discriminated against its exports. Fearful of its postwar financial situation, Britain demanded large American tariff cuts in exchange for a reduction in preferences and wanted the freedom to impose quantitative restrictions on imports in case of balance of payments difficulties, something that became Article XII of the GATT…

Over its 60-year history, the GATT has had many shortcomings. Agricultural trade has largely eluded liberalization. The current spread of preferential trade arrangements… have reintroduced discriminatory trade practices…

Despite these shortcomings and difficulties, the GATT framework has survived as a durable code of conduct for commercial policy and dispute resolution…

The prosperity of the world economy over the past half century owes a great deal to the growth of world trade which, in turn, is partly the result of farsighted officials who created the GATT. They established a set of procedures giving stability to the trade-policy environment and thereby facilitating the rapid growth of world trade. With the long run in view, the original GATT conferees helped put the world economy on a sound foundation and thereby improved the livelihood of hundreds of millions of people around the world.

The task for statesmen today is to look beyond short-term political considerations, arising from the complaints of special interests that fear market competition and the parsing of subsidies, and bring the ongoing Doha Round to a successful conclusion. If immediate steps cannot be taken to liberalize trade, then the phasing in of reforms and the phasing out of subsidies over many years is perfectly consistent with the long-term objectives of the GATT. We should remind ourselves how much poorer the world would be today without the politically courageous decisions made by visionary diplomats meeting in Geneva 60 years ago this month.

This is the appropriate occasion to call for good trade policymaking, but I won’t hold my breath.

Bhagwati on American trade politics

In the FT, Jagdish Bhagwati writes:

Once the staunchest supporter of multilateral free trade, the US has turned into arguably its greatest foe. Both multilateralism and free trade are at risk…

Even the free-traders, among them many Republicans, have undermined multilateralism by embracing preferential trade agreements. These PTAs masquerade as free trade but are plainly not…

Amid anxiety over wages and jobs, wrongly blamed on trade and globalisation, it makes no political sense to take one piffling PTA after another to Congress, as the Bush administration has done. Each time a congressman votes for it, he expends scarce political goodwill. This applies particularly to Democrats whose constituents include a high proportion of workers. Asking Congress members to go repeatedly to a poisoned well has reduced their willingness to do so…

That assessment concurs with Evenett & Meier’s take on competitive liberalization’s domestic impact.

The result? Disaster, Bhagwati argues:

[T]he new Democrats insist on inclusion in trade treaties of labour and (domestic) environmental standards as elements of “fair trade” in a tougher way than ever before… It is comforting: you need not feel guilty if you can deceive yourself into thinking you are flogging the foreigner in his own interest.

It is a gift to protectionism that the Democrats can hardly wait to give to their lobbyists such as the AFL-CIO union federation.

Hot air is dirt cheap

After reading that the US-Korea FTA has caused the Japanese to talk about a FTA with the US, Tyler Cowen asks: Why are FTAs contagious?

Given the likelihood of a US-Japan deal in the near future, I think the real question is: Why are FTA rumors and press releases contagious?

See my contributions in the comments section for more detail.

Daniel Altman confuses me

Daniel Altman explains global economic governance by grouping together the IMF-WB-WTO trio and extending the “chairs and shares” IMF story to apply to the WTO in an IHT article. The result is nonsense:

The World Bank, the International Monetary Fund, the World Trade Organization – the United States manages to dominate all three groups and more, thanks to its economic might, or at least the economic might it had when those organizations were conceived. But how much of that power will it have to cede to China when that country outweighs U.S. productive capacity?…

In September, China was granted a quarter more votes in the IMF as an acknowledgment of its growing economic importance…

The World Trade Organization is an even tougher nut to crack, since it works on a consensus system; each member has a veto. Still, the United States has found other ways to dominate its operation, for example by initiating more trade disputes (and being the respondent in more trade disputes) than any other member. And only the United States and the European Union participated in the backroom negotiations at both the Uruguay round of trade talks in the 1990s and the Doha round that is currently under way.

Being the respondent in WTO dispute cases is a sign of dominance?!? Hats off to the US for ruling the globe by losing cases to Antigua and Brazil. I suppose China ought to welcome a flurry of cases against it.

Similarly, Altman’s characterization of trade negotiations is misleading. First, the green room meetings of the 1990s often included 25-30 participants, not merely the US and EU. Second, the US failure to enter into productive dialogue with important trading nations is a sign of its incompetence and inability to complete the Doha round, not dominance. Third, the EU and US have sought to increase Chinese participation in the Doha round of negotiations, but China has been satisfied to rest on the laurels of its 2001 accession.

Altman is a solid journalist and very smart guy, but I think he has mischaracterized the American and Chinese roles in the WTO.

KORUS: A test of competitive liberalization theory

Ben Muse, the blogosphere’s chief KORUS correspondent, has posted a wealth of links and information about the impact of the agreement in terms of trade diversion and competitive liberalization.

My favorite paragraph (rhetorically, not substantively) is from a FT editorial:

Karan Bhatia, the deputy US trade representative, described the deal as a “real shot in the arm” for the US trade agenda. Maybe, but it is a shot in the kneecaps for the multilateral trading system, which remains the only way to agree and enforce workable trade deals. Unilateral reform always works, of course, but failing that, what we really need instead is some kind of “World Trade Organization”. There’s an idea.

Another paragraph worth highlighting comes from a February op-ed by Fred Bergsten.

Political developments within the United States suggest that Korea has a unique historic opportunity to achieve a preferred trade and indeed overall relationship with the United States that is unlikely to be available to any of its main competitors for a prolonged period of time. This will be realized if Korea can conclude its negotiations for a comprehensive and balanced free trade agreement (FTA) with the United States within the next two to three months so that the deal can be approved by Congress under the “fast track” provisions of President George W. Bush’s current trade promotion authority. Since that authority is unlikely to be extended when it expires next July, or even when a new administration takes office in the United States in 2009, Korea’s key competitors such as Japan and Taiwan will probably be unable to receive similar treatment in the foreseeable future and thus Korea will achieve preferred status for a considerable period.

Locking in preferential advantages for a considerable period doesn’t sound like the cascading freeing of trade that competitive liberalization is supposed to encourage.