Below are excerpts from an online debate hosted by The Economist. The original debate is found here.
Driven in part by a progressive lowering of barriers to trade in both rich and developing countries, global trade expanded faster in the decades leading up to the crisis than the global economy grew. Economists argue that free trade makes everyone better off, allowing more, and more varied, goods, and lower prices, than would otherwise be possible. Some also argue that it leads to faster economic growth and less poverty.
Some critics of free trade argue, however, that its supposed benefits for poor people and developing countries are illusory. Trade, they say, benefits rich countries at the expense of poor ones, increasing inequality between nations. Others say that it hurts rich-country workers, particularly the less skilled, thus increasing economic equality within rich countries. All would rather that the world concentrate its efforts on making trade “fairer” rather than further attempt to reduce trade barriers.
What does the balance of the evidence say? What does it actually mean to make trade fairer? Fairer for whom? Must the two goals be mutually exclusive? These are some of the questions this debate will tackle.
Jagdish Bhagwati — Opening Remarks: On the contrary. At the outset, we have a problem of ambiguity. While we know what free trade means—we mean by it the absence of price or quantity interventions in trade that prevent the translation of world prices into domestic prices, keeping in mind that trade instruments can be decomposed into a sum of domestic policy instruments—it is a phrase that has no settled meaning in policy discourse. In fact, there are three main meanings which we can assign to it today. Fortunately, in each case, we can argue that making trade fairer will have malign effects whereas making trade freer will make us better off.
In the first meaning, often, in the United States in particular, free trade is considered unfair if other nations are less open than one’s own. This notion of unfair trade was also manifest in Britain at the end of the 19th century when Germany and the United States had emerged as competitors to British hegemony. Fair trade associations grew up at the time, agitating to end Britain’s unilateral free trade, much as the United States saw the demands for fair trade increased when it faced the rise of Japan in the 1980s and many feared that the principal source of relative American decline was the asymmetric closed the Japanese market. This is, of course, a recurrent theme in the United States: Japan has been replaced by China, currently prospering because its markets are considered to be closed relative to the American markets.
Now, if the demand for fair trade in the sense of demanding reciprocity in openness leads to others reducing their trade barriers, that is good. But if it leads to closing of one’s own, because others do not yield to such demands, that is bad. Thus, the theory of unilateral trade and reciprocity teaches that if others open their markets when we open ours, we generally speaking get a double dividend (from opening ours and others opening theirs); that if such reciprocity does not obtain, we would still profit from our own unilateral freeing of trade; and that, in fact, if immediate reciprocity is denied, it may be prompted down the road in these initially non-liberalising nations by the demonstration of success with freer trade or the relative strengthening of pro-trade lobbies in these nations as they liberalise on their own: what I have called “induced reciprocity” (see “Going Alone”, MIT Press, 2002).
In the second meaning, a more potent notion in current discourse is the notion that fair trade requires that rival producers abroad should carry the same burdens on labour (and domestic-pollution) standards as one does. If the same industry carries differential burdens across countries, and yours is greater, then free trade will harm you.
These demands, when reflecting lobbying by specific industries complaining of unfair trade because their competitors are less burdened, are misplaced since there is no reason why there should be such identity of industry standards across countries. The shadow price of domestic pollution may well be different across countries for an industry: abundant fresh air and widespread dysentery owing to polluted water in Kenya relative to the United States may legitimately mean that the polluter-pay tax be less in Kenya for air pollution and more for water pollution than in the United States.
The same goes for labour standards. Except for consensus on a very small (but possibly growing) set of universal labour standards such as the proscription of hazardous child labour, many standards will reflect local history, politics and economic circumstance. When labour unions in the United States typically ask, nonetheless, that others abroad raise their labour standards to the US standards, the argument is usually couched in terms of altruism: we are doing this for your workers. But, in truth, the argument is prompted by self-interest, that is, it is designed to raise the cost of production abroad so as to moderate competition which, it is wrongly feared, is harming one’s own workers. Economists will recognise this as a form of export protectionism, as an alternative to conventional import protectionism. If a beast is charging at you, you can catch it by the horns (as with import restrictions) or you can reach behind the beast, catch it by the tail and break the charge (as with export protectionism).
Some labour groups have turned instead to asking for acceptance of the core labour conventions at ILO by a country as a requisite for freeing trade with it. Ironically, however, for several reasons, the United States has not ratified a large fraction of them. Maybe the United States will begin by suspending all its exports until all core conventions are ratified: if charity begins at home, so must trade sanctions for lack of ratification of the core conventions?
As for the third meaning, perhaps the most influential demand for fair trade today is in an altogether different sense. It derives from British charities like Oxfam and is really a demand for what economists call a just price to be paid to foreign suppliers in trade, a notion that goes back at least to Rowntree’s practice of paying a higher-than-market price for cocoa beans processed into its chocolate.
This is of course a perfectly innocuous procedure, except that it turns into a form of protectionism if regular trade is sought to be eliminated in favour of fair trade. For example, retailers may be forced to carry only fair trade coffee. I believe that this is a mistake. In particular, when I pay a higher price for my fair trade coffee, I am providing a subsidy to the suppliers of this coffee vis-à-vis the market price. That may well be what I want to do as my altruistic activity. But I may want instead to use my altruistic funds on what I consider worthier causes like support of women’s rights NGOs or children’s nutrition. I see no reason why I should be forced to accept someone else’s definition of how I should behave as an altruist.
Ngaire Woods — Opening Remarks: Trade has a pretty bad name in some quarters. “Trade robs poor people of a proper living, and keeps them trapped in poverty” writes Oxfam on its website. The Confederation of British Industry (CBI) reckon Britain lost some 250,000 jobs to China, India, eastern Europe and other countries in the decade up to 2004. The “giant sucking sound” of jobs disappearing abroad is invoked in each American election. Others criticise the rigged rules of the trading system. Recall the raucous protests at the WTO’s 1999 meeting in Seattle. There is a widely held popular view that trade is unfair.
Making trade fairer is important to avert a further public backlash against trade. It is also important so as better to reconcile trade goals with other important national goals such as environmental and social protection. Finally, the so-called free trade system needs to be made fairer so that it does not stymie competition, and crush innovation and entrepreneurship. It needs to offer a more level playing field to commercial newcomers and competitors in rich and poor countries alike.
Advocating freer trade will not resolve the unfairness of trade. Free trade is the dream of most textbook-wielding economists. But few others go much beyond the slogan. Free trade is a useful banner for traders who want access to other people’s markets. “Free trade” has been used successfully by powerful countries to prise open markets to sell pharmaceuticals and banking services, and to gain access to government procurement contracts.
At home the story is different. Large firms have little appetite for free trade and competition in their own backyard. They prefer to enjoy the advantages and protections for which they have carefully lobbied. Robust competition has little appeal for those who understand that they will make more profit if they can corner the market, whether at home or abroad. The invisible hand of the market and free trade is reserved for deploying against competitors.
Making trade fairer is about addressing both outcomes and processes of trade. Fairness is not just moral pleading. It affects behaviour. The fairness of outcomes has been explored in recent years by economists using a simple experiment. A player is given a sum of money to share with another. The first player can offer any portion of the money he or she likes to the other who can either accept or reject it. If the second player rejects the offer, neither player gets any money. Obviously, self-interest would suggest that whatever is offered—whether perceived as “fair” or not—is worth the second player accepting (since it represents a net gain). Yet players offered small amounts often reject on the grounds of unfairness.
Fairness may become yet more influential. According to a recent report by The Economist, notions of fairness increase steadily as societies achieve greater market integration: “People from better-integrated societies are also more likely to punish those who do not play fair, even when this is costly to themselves.” In international trade then, the fairness of outcomes may matter more and more not less and less.
The world expects trade outcomes to be somewhat unequal. But when Oxfam reported back in 2002 that 97% of the income generated by international trade benefits rich and middle-income countries, while 3% flows to poor countries, it made a stir. Standards of fairness had been breached.
Fairer trade rather than freer trade could change some of these outcomes. A persuasive case is made by my Oxford colleagues, Paul Collier and Tony Venables. Carefully deployed special preferences and protectionism could be used intelligently to help to catalyse growth in African countries, and to improve the lives of the bottom billion. Conversely, the dismantling of special preferences has levied some high costs.
Fairness is also important in the governance of trade. International trade negotiations have resulted in rules which open up markets mostly for the goods and services exported by rich and emerging economies, while keeping markets closed in agriculture and other goods which are the main produce of poorer countries. The rules are made in negotiations in which the powerful call the shots, and do not always do so in good faith. In the Uruguay Round of negotiations industrialised countries were perceived to have exacted precise and far-reaching commitments from developing countries, in exchange for vague promises, such as to liberalise agriculture, which they have not kept. The Doha Round keeps failing to restart, in large part because there is too little trust in the fairness of its likely outcomes, as well as the fairness of the negotiating process, something Pascal Lamy, Director-General of the WTO, is trying valiantly to change.
The enforcement of trade rules is also unfair. When countries break trade rules, they are not systematically policed. They will be caught when their actions affect countries in which business groups are organised and well resourced enough to play a key role in gathering information and financing the preparation of the case against the offender. For most small countries, bringing a case against an important trade partner is unthinkable. They could lose discretionary trade access, aid or geostrategic assistance. Were they to win, they would secure the right to apply retaliatory measures which might have little effect—a pyrrhic victory for many.
Trade needs saving. But freer trade will not do the trick. The perceived unfairness of trade leads people to press for less trade not freer trade. Fairer trade, by contrast, would bolster public support, allow a better reconciliation with national priorities such as environment and development, and could offer a more level playing field to ensure more open and vibrant competition.
Jagdish Bhagwati — Rebuttal Remarks: Beauty is in the eye of the beholder. Fairness in trade also is the way you choose to define it.
In my initial statement, I had taken, and taken apart, three fashionable concepts of fair trade which are pitted against free trade today. My most distinguished friend, Professor Ngaire Woods, is concerned with altogether different notions of fair trade, reflecting her specialisation in political science rather than in economics, her interest in international governance, and her proximity to the activist anti-trade movements and charities such as Oxfam that dominate the English landscape. But even when arguing against free trade because it is unfair according to her notions of fair trade, Professor Woods fails to persuade me.
She claims at the outset that “free trade has a bad name”. She believes this, not because of unfair trade notions she cites (which I address below), but also because she seems to be sympathetic to the allegations that free trade is a malign force. She quotes Oxfam, whose writers on trade claim: “Trade robs poor people of a proper living, and keeps them trapped in poverty.” Try telling that to the nearly 500m people who have been pulled up over the poverty line in the last two decades of rapid growth in India and China, in part because of changed policies that included exploiting trade and inward investment opportunities that earlier policies had shied away from.
The Report on the Future of the WTO by the expert group chaired by Peter Sutherland addresses many such allegations against free trade that are circulating today and is best consulted directly. My 2004 book, “In Defense of Globalization”, also addresses the allegations that trade undermines social objectives such as gender equality and democracy and concludes that trade generally advances, rather than handicaps, these agendas as well.
Moreover, it is inaccurate to assume that free trade is rejected by the majority of people in many countries. The polls in the United States, even in the middle of the current crisis, did not shift a majority against free trade. In today’s interdependent world economy, many seem to understand that exports sustain their jobs and that protectionism may save a few thousand jobs in terms of its direct impact on the protected activity but, when retaliation kicks in, the country could lose hundreds of thousands of jobs instead. It would be a policy of “penny wise and pound foolish”. When my team and I recently debated three of America’s staunchest protectionists, with hundreds in the audience, I had been persuaded by pessimistic statements such as that by Professor Woods that we would lose 55:45%. But the vote went 80:20% in our favour.
But then are we who favour freer trade in danger, not because freer trade causes harm rather than good or that the majority think so, but because of the charge that trade today is widely considered to be unfair? Of course, if you ask in the polls, should trade be fair, without elaborating what you mean by fairness, you are going to get a majority saying it should be. You would have to be a knave or ghoulish to say otherwise. The important question is: if people are exposed to proper debates, like the one I described or the one that Professor Woods and I are having, and understand both what is meant by fairness and what are the arguments for and against that specific notion of fair trade, what would be the vote? In that spirit, which alone can contribute to an informed democracy, let me now consider Professor Woods’ concerns.
In essence, she produces three arguments. First, that (again quoting Oxfam) the “rules of the trading system” are “rigged” against the developing countries. Second, the rules of the trading system are made by the developed and not by the developing countries. Third, the distribution of the gains from trade is skewed against the poor countries.
On the first argument, let me briefly say that “Part II and Special & Differential Treatment” have long been applied to the developing countries at the GATT. Little was demanded by way of reciprocal trade concessions. This is also why the frequent allegation that trade barriers are higher on the average in the developed than in the developing countries is incorrect for manufactures, which were the principal focus of GATT until 1995, since agriculture was excluded by the 1955 waiver.
On the second argument, I certainly agree that several institutions, such as the IMF and the World Bank, need more voice from the developing countries. It is scandalous that Dominique Strauss-Kahn and Robert Zoellick were more or less nominated by the EU and the United States respectively. By contrast, the WTO smells like roses. Pascal Lamy had to fight hard to gain his first term. Also, the WTO works by consensus; there is almost no voting by financial contribution. In fact, it is the free trade agreements with hegemonic powers that Professor Woods seems to celebrate, which are the vehicle for the asymmetric exploitation of the developing countries. All kinds of trade-unrelated demands, driven by lobbies in the hegemonic power, are imposed on the developing countries in one-on-one negotiations, under the cynical pretence that these demands are good for them: see my 2009 book, “Termites in the Trading System: How Preferential Agreements Undermine Free Trade”.
For the third argument, Professor Woods turns to Oxfam again, citing its assertion that the gains from trade had accrued almost entirely to the developed and middle-income developing countries. But the middle-income developing countries often ceased to be “poor” countries because of changed policies that exploited trade better, among other reforms. Oxfam created a “stir”, according to Professor Woods, maybe among other British charities and the singing troubadours whose electric guitars seem to drown out the voices of scholars effectively in Britain. But elsewhere, the 2002 Oxfam report is seen to be the rank nonsense that it is.
Ngaire Woods — Rebuttal Remarks: Free trade unleashes unambiguously positive results in any country choosing to liberalise, or so Jagdish Bhagwati would have us believe. It is a very tempting argument. Free trade could be the silver bullet of economics. It could be the policy which at one stroke of a pen restructures an economy, unleashing new forces of entrepreneurship and competition. It does not seem to require other policies, nor other countries’ cooperation. Why would we eschew it?
Professor Bhagwati argues that removing all barriers to trade is in every country’s interest, regardless of whether other countries reciprocate. Neither part of this proposition is universally true.
Free trade is not always in a country’s interest. Professor Bhagwati’s argument assumes that trade liberalisation will expose protected industries and the crony capitalism which goes with them, causing them to disappear. So far so good, but that does not ensure growth. Next it is assumed that new sectors will magically emerge, creating non-traditional exports and accelerating a country along a path of comparative advantage towards rapid growth.
Is this what happened in China, Korea, Taiwan, or Japan? Not quite. Each carefully managed their export-led growth using exchange-rate policies, government investment and industrial strategies, and access to markets in other countries. The rest of the world still complains that each of these countries is protectionist. If trade liberalisation is a silver bullet, these cases show that it needs a special kind of gun and a carefully selected target.
Some contrary examples reinforce the point that trade policy must be integrated into a country’s overall economic strategy. In Africa several countries liberalised trade in the 1980s and 1990s. For many, this was seen as an antidote to the protectionist, import-substitution industrialisation of the 1960s and early 1970s. But what came next was a disappointment. New export industries did not magically emerge. To the contrary, what mostly occurred were rising unemployment and deindustrialisation.
Across African economies, manufacturing dropped as a share of GDP from 10-15% (between 1960 and 1975) to less than 5% in most countries by the end of the 1990s. This is bad news for countries that need to diversify. Too many African countries are locked into producing one or two commodities or raw materials for a small clutch of dominant global companies at prices which are volatile. To escape the trap they are in, they will need more than free trade to catalyse growth. Hence the case some economists are not making for new kinds of protection (applied by industrialised countries) which could foster growth and opportunity.
Professor Bhagwati also argues that free trade does not need to be reciprocal to be beneficial. A small matter of politics mucks this up. In the real world of trade negotiations, reciprocity is the name of the game. Powerful countries dismantle their trade barriers only when offered reciprocal reductions by others. I recall interviewing a US Senator, Chuck Grassley, for a BBC documentary a few years ago. I asked him whether he would support unilaterally reducing US subsidies and protectionism when the economic benefits to the United States from such policies were clear. His answer was an emphatic “no”. Why reduce your armoury before going into war?
Unilateral trade liberalisation weakens what a country can offer in exchange for getting access to other countries’ markets. This is the logic behind developing countries clinging to high-bound tariffs, even when in practice the tariffs they apply are much lower. They know they need weapons in their long drawn-out battle to gain access to industrialised country markets such as in agriculture.
So much for the case for free trade as a fix-all. What about the case against fair trade made by Professor Bhagwati? He reminds us that in the name of fair trade, US labour unions try to impose US standards as a form of protectionism. But he skips too quickly over examples such as the US-Cambodian free trade agreement which embedded incentives (greater trade access) for improvements in labour standards, bringing in not just the ILO as an international monitor, but workers’ groups and Cambodian government officials into a dialogue with one another.
Professor Bhagwati goes further in his argument against universal standards, arguing that different countries have different histories and economic circumstances. These shape their capacities to compete. It may be legitimate for air polluters to pay less in Kenya than they do in the United States because there is abundant fresh air in Kenya. How far would Professor Bhagwati take this?
What if US or European companies set up their production in Kenya to avoid air-pollution charges in their own countries? (And, by the way, they will then use the case politically to press for lower pollution charges at home.) The first part of this could be good, since it brings more industry to Kenya. But what if those companies are exploiting more lax or ineffectual safety regulation? In Bhopal in 1984 this led to one of the world’s worst industrial accidents, with poisonous gas leaking from a Union Carbide pesticide plant and killing some 3,800 people and affecting hundreds of thousands of others. More recently, Lehman Brothers were apparently setting up their most risky financial instruments in London to avoid US regulation. The fall-out of that affected all of us. A shrug of the shoulders in the name of free trade is not enough.
Sometimes people need protecting. International trade and commerce can either help to make their lives better or make their plight worse. The fact that protectionists use fair trade arguments does not render illegitimate all efforts to make the effects of trade fairer. People get this. All those who pay that little bit more for fair-trade coffee (and they are doing so in increasing numbers) are not undermining free trade. They are simply doing their bit to make it fairer.
Jagdish Bhagwati — Closing Remarks: I will begin by recapping some key points concerning alternative notions of fair trade. The audience should know now that we have as many as six different senses in which fair trade has been discussed in the debate, so that any discussion would be meaningless unless we define which sense is the one at issue. These are, listing my three first, as follows:
- Fair trade means reciprocity of openness. It is lacking when others are less open than we are. It is contended that free trade in the presence of such unfair trade harms oneself.
- Fair trade means that others must have the same labour standards (and domestic environmental standards and whatever we decide to put into the pot) as we have. It is argued that if this is not the case, we harm ourselves by freeing trade with such other nations.
- Fair trade means that we should pay a just, not the market, price when we buy from other (chiefly poor) nations in free trade. If we pay only the market price in trade, we are exploiting the poor producers; such free trade must be rejected and replaced by trade only at market-plus prices.
- Fair trade requires that the distribution of the gains from trade be fair, between and within nations. It is not, and therefore free trade is not acceptable.
- Fair trade means that all nations, including the poor nations, have a voice in governance at the WTO which sets the rules for trade. This is not the case.
- Fair trade means that we must reject the rigged rules that govern free trade today. Hypocrisy and disregard for the interests of the poor nations follow, making free trade’s outcomes unfair.
Both my earlier statements, the first dealing with my list of three, and my response to Ngaire Woods’ claims on the latter three, have stated clearly the different problems with all six charges of unfair trade, and their allegedly adverse implications for free trade. There is much in the trade literature on each of these topics, of course, and what I have argued here by way of examining critically and often refuting the claims that unfair trade undermines the case for free trade, is only the tip of an enormous iceberg: our audience, if they wish to get into any or all of these six areas, has an excessively rich smorgasbord, indeed Babette’s Feast, to bite into. So, let me use the limited space I have at my disposal, not to say more on this set of issues to answer some of Professor Woods’ responses, but rather to concentrate instead on other specifics where I would like to dispute the added claims that Professor Woods makes mistakenly against the case for free trade itself.
First, she believes that I believe that free trade is a silver bullet that unambiguously (i.e. invariably) works to benefit a country and that “It does not seem to require other policies”. I doubt if any serious proponent of free trade believes either proposition. On the former issue, my own early work showed, for instance, that one could have “immiserising growth” under free trade if the decline in the terms of trade resulting from growth created losses that outweighed the primary gain from growth. The relevant question always is, however, whether this model is the correct one to use to make policy. Here, few believe today that the widespread export pessimism (to which I was reacting) which would justify a significant departure from free trade was unjustified. Equally important, even ruling out such malign outcomes as an important central tendency, free traders have always been clear that the gains from trade may be negligible if there are inflexibilities in production and consumption: the gains are directly proportional to reallocation.
Also, while theoretical models do not establish a firm relationship between growth and openness, the fact is that, as Professor Arvind Panagariya, a noted international economist has shown in an article in The World Economy, for a period of nearly 30 years countries that have had high growth rates have also had greater openness in trade. At the same time, there is practically no example of a closed country having anything except a dismal economic performance on a sustained basis when it has been autarkic.
Again, she claims that across African economies, manufacturing has dropped as a share of GDP in the period since 1975, despite opening their economies. Analysis of African countries does not corroborate this assertion: South Africa, Botswana, Malawi and Ivory Coast, among others, appear to show a rise in the ratio after 1975 (the earlier data being often unavailable). In any event, growth can arise through agriculture and primary resource trade; industrialisation is not a correct measure in this instance, as we learnt long ago from Argentina under Peron.
On the latter issue, Professor Woods could not be more wrong. You may liberalise trade, but if you have strict licensing which prevents expansion and reduction of output by firms, as we in India did, there will be negligible gains from trade. India profited from significant trade liberalisation after 1991 in particular because industrial licensing was also removed. GATT itself recognises how a trade concession could be nullified indirectly by non-trade policies: the so-called non-violation violation. So, if you agree to open the door to your castle and do so, but you build a moat round it with alligators thrown in to boot, you have effectively offset the opening of the door. I could go on with masses of such examples, but they would only illustrate what should be obvious by now.
Ngaire Woods — Closing Remarks: We all agree on the benefits of trade. At the heart of this debate are two big things about which Jagdish Bhagwati and I (and various participants) disagree. The first is whether governments should liberalise trade policy, regardless of whether others do the same. The second is whether “fairness” should be a goal of governments and whether it can and should mean something more than the economist’s notion of efficient allocation.
First, some clarifications. My argument is not against trade or free trade. From the outset I noted the potential benefits and advantages of trade and stressed the perils of protectionism. My argument is that trade liberalisation is not the simple remedy it sounds. Equally importantly, government should aim to do more than ensure an efficient allocation of resources globally. Taken together, these arguments point to the greater urgency of making trade fairer rather than freer.
What is free trade? I think we all agree that free trade is a theory. The theory is that the most efficient allocation of resources, globally, would be achieved if governments were to stay out of trade. If governments did not intervene, by using tariffs, subsidies, or regulations to increase the prices of goods paid by their consumers for things made in other countries, the result would be what economists describe as “Pareto efficient”.
We disagree about how this theory translates into the real world and with what implications for policy. For Professor Bhagwati, free trade is the best practical guide we have to policy: if in doubt, liberalise, even if no other government is doing the same. By contrast, I stress that free trade only produces efficient outcomes if other necessary conditions are in place such as (near) perfect competition and information. To this end, governments must intervene to prevent monopolies, negative externalities, and market failures.
At the global level, competition among producers in different countries requires carefully negotiated rules among countries (the GATT, the WTO, exchange-rate rules) and their effective monitoring and enforcement. It requires access to accurate and available information, and genuine competition (as opposed to monopolies, oligopolies, and monopsonies among global producers and intermediaries). Without these conditions, trade quickly becomes inefficient and unfair.
What is fair trade? Fairer trade is not necessarily an argument against free trade (although doubtless it is sometimes used as such). ”Fairness” has two dimensions. The first is procedural: are the rules fair, and are the processes used to monitor and enforce the rules fair? The second dimension of fairness is substantive: are the outcomes of trade fair? I will deal with each in turn.
For Professor Bhagwati the current state of the rules is “fair enough” for free trade to unleash efficiency-maximising global competition. On this I disagree. Taken as a whole the trading system has been shaped by the mercantilist interests of the largest and wealthiest countries. Liberalisation has taken place in a series of agreements, originally among a small group of industrialised countries who opened their markets to one another in a reciprocal way, creating a premier league of trading nations. Relegated to lower leagues, developing countries were long denied access to markets for their textiles and garments. The MultiFibre Agreement and its successor were finally phased out in 2005. Developing countries are still denied access (except through special discretionary agreements) to markets for their agricultural goods and commodities. This does not make freer trade a bad idea, it forces us to consider practicalities.
Our moderator, Saugato Datta, says surely I am arguing that the solution is to remove the protectionism in industrialised countries—to make trade freer. Yes, but the nub of this debate is how is this most likely to occur? Two means have been proposed. First, Professor Bhagwati argues that developing countries should liberalise unilaterally. My retort is that this will not induce industrialised countries to dismantle their protectionism. The invisible hand of free trade will not displace the deeply rooted lobbyists and agri-business interests in Brussels, Washington DC, and Tokyo.
The second means for liberalising is to do it through rules. Professor Bhagwati argues that every country has a vote in the WTO (unlike the IMF, and World Bank). But voting does not take place in the WTO. Trade rules are made by small groups of negotiators from countries recognised as important enough to include. I acknowledge that important steps have been taken to open up this rule-making process and bring “new faces into the Green Room”. But don’t forget that the basis for negotiation is still very much tit-for-tat: I’ll dismantle my tariff if you dismantle yours. Furthermore, the rules are enforced in a way which gives little hope to small countries. A country can use the robust dispute settlement of the WTO to bring to light someone else’s flaunting of the rules. But even if they win, the right they acquire to use retaliatory measures may well go unnoticed if their market is small.
Finally, fairness is about substance, or the outcomes of trade policy. Take a step backwards and consider the fact that in spite of all the rhetoric and promises of the last three decades, the major industrialised countries have still not liberalised agriculture. The outcomes of trade are only as fair as the initial market conditions (highly imperfect) and rules within which trade occurs. And the outcomes of trade must be balanced against other government priorities. As Aaditya Matoo argued earlier in this debate, governments must balance a range of priorities. Trade is affected by policies which address climate change, control pandemics, deal with terrorism, attempt to uphold human rights, or manage the global commons. Free trade—and its promise of economically efficient resource allocation—has no special moral claim, either as a means or as an end, which trumps all other goals of government.