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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