The Opportunities
Experience with trade negotiations since 1945 is not bad.. In the course of half a century many tariffs were substantially reduced, though there are still rather high tariff peaks and tariff patterns discriminating against processing of raw materials and intermediate products in countries where they have been produced. Increasingly countries that had shown a preference in favour of protectionism and import substitution became willing to liberalise trade and to implement market reform. At first this was a by-product of adjustment policies that were more or less imposed upon them by financing institutions, but later this tendency became more endogenous.
Negotiations were limited to tariffs and to manufacturing sectors. These limitations constrained the capacity to liberalise fully among all countries, but they also made the negotiations manageable. During the Dillon Round, the Kennedy Round and the Tokyo Round the ‘low-hanging fruit’ was reaped. These negotiations also helped to counter inclinations to return to protectionism. But protectionist tendencies still had their way in the form of NTBs and restrictive business practices. Moreover, commodities and agriculture still were outside the scope of these rounds. These subjects were dealt with in different international fora. The Uruguay Round negotiators reached the limits of what was possible within the prevailing trading system. After about half a century, it was deemed necessary to broaden the scope. GATT was turned into WTO, which meant that investment, services and agriculture got a prominent place on the agenda, next to trade in goods. It also implied a broadening from tariff barriers to all barriers to trade. And it meant a widening of the partnership in the negotiations: with Russia and China as well as with developing countries. The latter had been followers of what basically were West – West negotiations. The entry into force of WTO as the successor of GATT increased their chances to become equal partners in the talks.
Since the early 1990s the broadened negotiation process slowed down. The reason was not that countries had become more protectionist. Governments had not become less aware of the potential benefits of trade liberalization. However, they found it difficult to cope with the uncertainties resulting from globalisation. They had to learn to deal with the complications resulting from the multiple broadening of the negotiations, as reflected in the mandate and the composition of the WTO.
Many governments resorted to alternatives to multilateral negotiations on a world scale. The 1990s saw a preference for regional reciprocal or non-reciprocal trade liberalization. Governments wanted to combine more free trade with more speed and more certainties than would be possible in a fully multilateral context.
Recent developments in trade policy reflect not so much a tendency towards more protectionism as well as towards trade liberalization in stages. Countries seem to prefer a ‘two-track’ approach: a slow WTO process in combination with an intensification of bilateral and regional trade negotiations, both with the objective to enlarge trade, but in such a way that the economic and social consequences of that enlargement can be managed. The problem, however, is that the second track renders the first track less and less feasible, because it undermines the rule-based character of a global system, eroding principles which in earlier stages had been agreed by all countries. It is not enough to address such a tendency by highlighting the wonders of trade liberalization. I agree with Anderson that in present circumstances a multi-pronged approach has to be chosen: unilateral reform at the national level and multilateral reform at the WTO level, supplemented by regional support for both, in a form of open MFN regionalism. I consider this politically feasible. In such a multi-pronged approach there is no place for an expansion of regional preferential trade arrangements. These would harm third parties, erode an efficient allocation of resources at home and undermine efforts to achieve a better multilateral agreement later. Temporary preferential treatment, enjoyed by initially less developed countries and granted to them on the basis of infant-economy considerations in order to overcome time-bound handicaps, turns out to stay. It is difficult to reduce preferences, let alone to remove them, because beneficiaries see them as established rights. It is nearly impossible to replace them by other measures intended to assist the integration of the country into the world economy at equal footing.
However, to choose in favour of a multi-pronged approach is more easily said than done. It certainly cannot be confined to trade measures only. A multi-pronged approach should be constructed in such a way that the real impediments can be removed: unequal treatment, social instability, transition costs, financial constraints and increasing foreign debt. Impediments to trade should be dealt with in conjunction with other macroeconomic constraints. The answer to the fears lies in elaborating a world trading system that (1) is truly rules-based, (2) guarantees equal treatment of all partners, (3) is comprehensive and in tune with the world financial system and (4) ensures sustainability. After the end of the Cold War and in response to the international economic stagnation and adjustment of the 1980s the world trading system has been reformed, in order to render it more adequate to address the needs that could not be taken care of by GATT. However, the new impetus to globalization since then demands a more far reaching reform of the world economic system (investments, trade, technology, debt, money and finance), without which claims to further open up economies will not easily be honored by all participants.
Negotiations were limited to tariffs and to manufacturing sectors. These limitations constrained the capacity to liberalise fully among all countries, but they also made the negotiations manageable. During the Dillon Round, the Kennedy Round and the Tokyo Round the ‘low-hanging fruit’ was reaped. These negotiations also helped to counter inclinations to return to protectionism. But protectionist tendencies still had their way in the form of NTBs and restrictive business practices. Moreover, commodities and agriculture still were outside the scope of these rounds. These subjects were dealt with in different international fora. The Uruguay Round negotiators reached the limits of what was possible within the prevailing trading system. After about half a century, it was deemed necessary to broaden the scope. GATT was turned into WTO, which meant that investment, services and agriculture got a prominent place on the agenda, next to trade in goods. It also implied a broadening from tariff barriers to all barriers to trade. And it meant a widening of the partnership in the negotiations: with Russia and China as well as with developing countries. The latter had been followers of what basically were West – West negotiations. The entry into force of WTO as the successor of GATT increased their chances to become equal partners in the talks.
Since the early 1990s the broadened negotiation process slowed down. The reason was not that countries had become more protectionist. Governments had not become less aware of the potential benefits of trade liberalization. However, they found it difficult to cope with the uncertainties resulting from globalisation. They had to learn to deal with the complications resulting from the multiple broadening of the negotiations, as reflected in the mandate and the composition of the WTO.
Many governments resorted to alternatives to multilateral negotiations on a world scale. The 1990s saw a preference for regional reciprocal or non-reciprocal trade liberalization. Governments wanted to combine more free trade with more speed and more certainties than would be possible in a fully multilateral context.
Recent developments in trade policy reflect not so much a tendency towards more protectionism as well as towards trade liberalization in stages. Countries seem to prefer a ‘two-track’ approach: a slow WTO process in combination with an intensification of bilateral and regional trade negotiations, both with the objective to enlarge trade, but in such a way that the economic and social consequences of that enlargement can be managed. The problem, however, is that the second track renders the first track less and less feasible, because it undermines the rule-based character of a global system, eroding principles which in earlier stages had been agreed by all countries. It is not enough to address such a tendency by highlighting the wonders of trade liberalization. I agree with Anderson that in present circumstances a multi-pronged approach has to be chosen: unilateral reform at the national level and multilateral reform at the WTO level, supplemented by regional support for both, in a form of open MFN regionalism. I consider this politically feasible. In such a multi-pronged approach there is no place for an expansion of regional preferential trade arrangements. These would harm third parties, erode an efficient allocation of resources at home and undermine efforts to achieve a better multilateral agreement later. Temporary preferential treatment, enjoyed by initially less developed countries and granted to them on the basis of infant-economy considerations in order to overcome time-bound handicaps, turns out to stay. It is difficult to reduce preferences, let alone to remove them, because beneficiaries see them as established rights. It is nearly impossible to replace them by other measures intended to assist the integration of the country into the world economy at equal footing.
However, to choose in favour of a multi-pronged approach is more easily said than done. It certainly cannot be confined to trade measures only. A multi-pronged approach should be constructed in such a way that the real impediments can be removed: unequal treatment, social instability, transition costs, financial constraints and increasing foreign debt. Impediments to trade should be dealt with in conjunction with other macroeconomic constraints. The answer to the fears lies in elaborating a world trading system that (1) is truly rules-based, (2) guarantees equal treatment of all partners, (3) is comprehensive and in tune with the world financial system and (4) ensures sustainability. After the end of the Cold War and in response to the international economic stagnation and adjustment of the 1980s the world trading system has been reformed, in order to render it more adequate to address the needs that could not be taken care of by GATT. However, the new impetus to globalization since then demands a more far reaching reform of the world economic system (investments, trade, technology, debt, money and finance), without which claims to further open up economies will not easily be honored by all participants.