The ‘swoosh’ of trade policy

The Glob­al­iza­tion Insi­tute, a new­ly-mint­ed, self-described ‘Cob­den­ite’ group in Lon­don has pub­lished it’s sec­ond paper in which Dr Razeen Sally—described, by the Institute’s pub­li­cist, as “Europe’s most senior trade economist”—presents his pre­scrip­tions for “the future of trade, devel­op­ment and inter­na­tion­al insti­tu­tions”. Just do it is Dr Sally’s rec­om­men­da­tion to gov­ern­ments on trade lib­er­al­iza­tion; an unfor­tu­nate­ly emp­ty slo­gan with zero trac­tion in the real world of trade advo­ca­cy

I met Dr Sal­ly last month when he vis­it­ed the Cen­ter for Inde­pen­dent Stud­ies in Syd­ney. This brief paper (bare­ly 16 pages, PDF file) grand­ly enti­tled “2005 and Beyond: The Future of Trade, Devel­op­ment & Inter­na­tion­al Insti­tu­tions “ is a slight­ly extend­ed ver­sion of the talk he gave at the CIS lunch. His the­sis is that the WTO has passed it’s use-by date, in part because

Hyper­in­fla­tion of the mem­ber­ship has almost crip­pled deci­sion mak­ing.”

That sen­tence alone should give you some idea of Dr Sally’s poor con­trol of hyper­bole (some­thing he shares with the Institute’s pub­li­cist, after all). “Hyper­in­fla­tion”? Does he real­ly mean that the grad­ual expan­sion of the WTO mem­ber­ship from 120-or-so in 1995 to 148 of the 200-or-so economies that now par­tic­i­pate in glob­al eco­nom­ic affairs is not only “inflated”—as if some of them per­haps don’t belong in WTO—but inflat­ed to a “hyper” extent?

What pos­si­ble rea­son can there be for think­ing that it’s some­how ‘infla­tion­ary’ to include in the only body that over­sees the glob­al trad­ing sys­tem a large pro­por­tion of the economies whose cit­i­zens cre­ate trade? And when does this attempt to be rep­re­sen­ta­tive of the economies par­tic­i­pat­ing in glob­al trade become “hyper” in the sense of “exces­sive”? Sev­en­ty-five per­cent of the economies in the world? Eighty per­cent? Could it ever be “hyper” to “inflate” rep­re­sen­ta­tion even to full rep­re­sen­ta­tion? Of course not: no more than it could be “hyper” to include all tax­pay­ers on an elec­toral role.

This isn’t a point about democ­ra­cy, how­ev­er, as much as a point about the self-inter­est of all mem­bers of WTO in see­ing the rules of the glob­al sys­tem remain unique and uni­ver­sal. The WTO aspires to uni­ver­sal mem­ber­ship because the open, mul­ti­lat­er­al trad­ing sys­tem is a pub­lic good. The main­te­nance of a pub­lic good demands that all ben­e­fi­cia­ries sub­scribe to it’s upkeep: as soon as you cre­ate a class of ‘non-con­trib­u­to­ry’ ben­e­fi­cia­ries you set the scene for the dete­ri­o­ra­tion of the ameni­ty. This is because, in the net­works of the trad­ing sys­tem, my ameni­ty is a func­tion of your con­tri­bu­tion to the sys­tem; if you don’t con­tribute, my ameni­ty is less.

Because it is a pub­lic good, the ben­e­fits of WTO are “non-exlud­able”; that is, all economies will be ben­e­fi­cia­ries, whether you mean them to be or not. For obvi­ous polit­i­cal and prac­ti­cal rea­sons, it is impos­si­ble to require all economies to con­tribute to the main­te­nance of the open-mar­kets-fair-process sys­tem of WTO if they are not rep­re­sent­ed in the sys­tem. They must take some respon­si­bil­i­ty for the sys­tem, which means, as many peo­ple—oth­er than Dr Sal­ly—would agree, tak­ing some own­er­ship.

Dr Sal­ly fears, how­ev­er, that the WTO ‘club’ has already allowed too many (devel­op­ing) economies to join and that their inter­ests are too diverse. He argues that the WTO is becom­ing “UN-ised” by “deep inter­nal fis­sures” among its mem­ber­ship. His rec­om­men­da­tions: pull back to the “core agen­da” of mar­ket access reforms and leave the run­ning of the show to the economies with “work­able gov­ern­ments and … bar­gain­ing pow­er.” As for the rest, Africa, the G-90 …

the plain fact is that their very mar­gin­al involve­ment in the world econ­o­my, bad-to-ter­ri­ble gov­er­nance and scarce nego­ti­at­ing resources make them unable to play more than a sec­ondary and reac­tive role”

I sup­pose, in a sort of colo­nial­ist-nos­tal­gic mode this stuff could be said to be “provoca­tive”. But, in truth, it’s as imprac­ti­cal as it is imper­ti­nent. In 1948, the U.S. and the U.K. could pret­ty much dic­tate the agen­da for the world trad­ing sys­tem. But the rea­son they no longer do so—apart from their small­er share of world trade—is that no one, least of all their own con­stituents, wants to mar­gin­al­ize ‘non-core’ economies like Indone­sia, or Colom­bia, or Pak­istan, or Egypt or Kenya or Nige­ria or all those oth­er pop­u­lous mem­bers of WTO whose stronger par­tic­i­pa­tion in world trade and deep­er inte­gra­tion into the world econ­o­my is one of the main objec­tives of WTO1.

The WTO is undoubt­ed­ly stum­bling toward it’s high pol­i­cy objec­tives and some of them are prob­a­bly beyond reach of many mem­bers at present. But a ‘two-speed’ WTO would only deeply dis­af­fect many gov­ern­ments and con­demn the whole program—the ‘core’ pro­gram on mar­ket access included—to prob­a­ble fail­ure.

As for cor­rect­ing ‘deep fis­sures’ in WTO, Dr Sal­ly has cho­sen pre­cise­ly the wrong recipe. I’m not sure that ‘deep fis­sures’ should be made to dis­ap­pear. After all, the res­o­lu­tion of con­flict is WTO’s goal, not its supres­sion. But if Dr Sal­ly wants to remove the ‘deep fis­sures’ he would have to cut either the U.S. or the E.C. out of the Orga­ni­za­tion; they are the most fre­quent, most liti­gious and most rau­cous dis­putants in WTO whether on beef-hor­mones, or GMOs or anti-dump­ing, or mul­ti-bil­lion dol­lar tax sub­si­dies or agri­cul­ture or … you name it. But, of course, both the E.C. and the U.S. are among Dr Sally’s ‘core’ economies. Scratch that idea.

Deci­sion-mak­ing in WTO is a real prob­lem. I chron­i­cle some of the prob­lems in my book on “WTO’s first ten years”, forth­com­ing soon I hope. After look­ing at the mis­takes and achieve­ments of that decade it seemed to me that effec­tive deci­sion mak­ing will have to be learned. It does not look like being a mat­ter of for­mu­la or of archi­tec­ture alone; if it were, the solu­tions would have been worked out already. Solu­tions that are effec­tive and inclu­sive are like­ly to be con­text-depen­dent. The process of improve­ment is like­ly to remain iter­a­tive, depend­ing on feed­back from Mem­bers and stake­hold­ers in the trad­ing sys­tem fol­lowed by renewed efforts. It won’t be fixed soon, but giv­ing up on inclu­sive­ness is mere­ly a coun­sel of despair.

It is evi­dent, too, that there are very dif­fer­ent agen­das of trade reform and eco­nom­ic inte­gra­tion among WTO mem­bers. That’s prob­a­bly one of the rea­sons that region­al agree­ments have grown so rapid­ly: allow­ing some to move ahead faster than oth­ers. Although I agree with some of the rude remarks Dr Sal­ly makes about these agree­ments, I sus­pect they may help to dis­si­pate the cen­trifu­gal forces in WTO

Also, I agree with Dr Sal­ly that one solu­tion to the cur­rent man­age­ment prob­lem is to focus more strong­ly in WTO on the ‘mar­ket access agen­da’. But I know that idea did not orig­i­nate with me or with Dr Sal­ly. It was the theme of for­mer-USTR Zoellick’s sur­prise Decem­ber 2003 let­ter to oth­er WTO trade min­is­ters, sig­nal­ing a return to the nego­ti­at­ing table after the col­lapse of the Can­cún Min­is­te­r­i­al meet­ing. It worked for the good rea­son that improv­ing mar­ket access is the low­est com­mon denom­i­na­tor of effec­tive trade reform; one that all gov­ern­ments rec­og­nize.

But Dr Sal­ly, like many aca­d­e­m­ic ana­lysts before him, seems to believe that because gov­ern­ments rec­og­nize this, they should Just do itTM

This Nike strat­e­gy (“Just Do It!”) makes polit­i­cal sense too. Rather than rely­ing on one-size-fits-all inter­na­tion­al blue­prints, gov­ern­ments have the flex­i­bil­i­ty to ini­ti­ate poli­cies and emu­late bet­ter prac­tice abroad in exper­i­men­tal, tri­al-and-error fash­ion, tai­lored to spe­cif­ic local con­di­tions

This is a semi-charm­ing idea. But, like the ‘autonomous lib­er­al­iza­tion’ strat­e­gy that was sup­posed to sus­tain the orig­i­nal APEC (Asia Pacif­ic Eco­nom­ic Com­mu­ni­ty) con­cept, it’s not a strat­e­gy for polit­i­cal action. As expe­ri­enced trade advo­cates know, it absolute­ly does not “make polit­i­cal sense”.

A few days ago I amused myself with con­coct­ing alleged laws of nego­ti­at­ing physics. Gallagher’s First Law of Motion in WTO nego­ti­a­tions is:

bq.  Trade dis­tor­tions in place tend to remain in place, absent some exter­nal force. Changes to trade mea­sures mean a re-dis­tri­b­u­tion of income, mak­ing polit­i­cal ene­mies of those whose prof­its are tak­en away but with­out win­ning the recog­ni­tion of those from whom the bur­den is lift­ed. This is the con­ser­v­a­tive bias in trade pol­i­cy.

No glob­al trade advo­cate who real­ly does want to reform mar­ket access bar­ri­ers should ever ignore the First Law. Gov­ern­ments do not want to “Just Do It” because to cut a trade bar­ri­er they will have to fight entrenched forces that were effec­tive in installing the bar­ri­ers in the first palace with­out, very like­ly, the sup­port of con­sumers who are being taxed by the bar­ri­ers. This does not mean that government’s won’t do it. But it usu­al­ly means that they need some cor­rel­a­tive rea­son to do it, like an agree­ment with a trad­ing part­ner on “mutu­al dis­ar­ma­ment”.

I know from expe­ri­ence that many economists—perhaps Dr Sally—will turn up their noses at the odi­ous aro­ma of mer­can­til­ism in this analy­sis. But if you want to pur­sue effec­tive trade advo­ca­cy, you’ve got to look for prac­ti­cal strate­gies that com­pre­hend the inter­ests of the deci­sion-mak­ers and min­i­mize the oppo­si­tion.

I com­mend Dr Sally’s paper to you. There are sev­er­al oth­er equal­ly vex­a­tious ideas ( the ‘rip­ple’ the­o­ry of infec­tious trade lib­er­al­iza­tion is one that I will keep for anoth­er day) to excite your lan­guid spleen.

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1 There’s more on these objec­tives in the five short para­graphs of the Pre­am­ble to the Agree­ment Estab­lish­ing WTO

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