The mercantilism of WTO

Taking a swing at the WTO has become a sort of sport that any amateur can join. Since the Canuún debacle, dozens of researchers have tried to make a few wild punches look like telling blows. Grant Nülle, a Research Fellow at the “Council on Hemispheric Affairs”: in Washington has now joined the crew. He has recently published an analysis on the Mises.Org site entitled “WTO’s Mercantilist Flaw”: It’s a familiar jibe. What the amateur analysts frequently miss is that the designers of the multilateral trading system—people like Roosevelt’s Secretary of State, Cordell Hull—found a clever way to use the seductions of mercantilism to support progressive liberalization of markets.
Nülle’s article makes the point that the WTO is ‘member driven’ (correct) and that despite a veneer of the ‘rule of law’ in the WTO dispute system, the mercantilist nature of member governments’ trade policies (‘exports are good and imports are bad&#8217)tends to hold sway over good economic policy. “In short”, says Nülle, “politics trumps economics.” bq. In democratic states, electoral expediency compels political parties to aggressively defend even the most pernicious trade-distorting policies, thereby circumscribing representatives’ negotiating mandates. As a consequence, WTO member states perceive trade as a zero-sum game, as opposed to an act of mutually beneficial exchange. What this really tells us that, in Nülle’s view, WTO member governments have a ‘mercantilist flaw’. That’s not really news, although Nülle possibly exaggerates the fault by assuming that all democracies operate like the US democracy in which a lot of trade-law emerges from the Congress. Because Congressmen are constantly running for re-election during their two-year terms, mercantilist log-rolling is the eternal plat du jour. Many democracies do not have the constitutional complication that places trade law initiative in the hands of the parliament. Although government by executive (such as we now have in Australia, alas) is not a generally desirable alternative, it nevertheless occasionally produces more courageous policy choices than parliamentary representatives are likely to make. This is why Nülle’s final shot is simply off-target. bq. As for the WTO, in reality a collusive organization created by states to manage, rather than free, commerce, it will continued to be regarded as the institution charged with preventing the world economy from descending into fratricidal confrontations between competing currency and trading blocs, facets of the turbulent 1930s. bq. But with the EU, Mercosur, NAFTA and other regional trading arrangements all vying for supremacy, and mercantilism entrenched at the heart of the dispute settlement system, one can say the WTO is anything but committed to unfettered trade between individuals across national borders. In fact the WTO can only be ‘committed’ to what it’s members are ‘committed’ to. So if member governments are in favor of ‘unfettered trade between individuals across borders’ then this is what the WTO will promote. As Nülle himself almost recognizes, they aren’t and it doesn’t. If you think about it for a moment, however, you’ll realize that this doesn’t necessarily add up to protectionism or mercantilism. More important, the WTO does was never charged to ‘free commerce’ as Nülle alleges: and it certainly does not ‘manage’ it. In my view, its purpose is more subtle, and more important, than that. The WTO is really intended to manage trade relations between governments. It has almost nothing to do with actual commerce, but only with minimizing disputes over the regulation of commerce between its members. It turns out that the most practical way to do that—the method that has been at the heart of the treaty’s activities for over half a century—is to negotiate reductions in the impact of those regulations.  The effort has been—by most measures—fantastically successful. Tariff averages have fallen (almost) monotonically for a half century and many non-tariff barriers have been eliminated altogether. It’s true that in the case of many—possibly most—smaller economies, much of this trade liberalization has been autonomous. It has occurred during spurts of reform: frequently following some sort of economic crisis. But in the world’s largest economies (USA, EU, Japan and now China), where external markets can seem less crucial to growth, the reciprocal benefit of “mercantilist” negotiations, through the GATT and now WTO, has been a key factor allowing governments to achieve change. That’s why the WTO appears to be ‘mercantilist’ on the surface. And that’s why it works.

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