The recent trade talks in Seattle invited violent rallies against the World Trade Organization (WTO) and, unsurprisingly, ended in complete failure on Dec. 3. Unfortunately, the media has not provided a fairer view of the WTO (formerly called GATT), which had largely been successful in dismantling tariff barriers to international trade in manufactured goods.
Today, the most favored nation (MFN) tariff rates for manufactured goods averages only 5 percent or below in the US, the 15-nation European Union, and Japan. Though developing countries are allowed to keep higher MFN tariff rates, these rates will be moving down year by year, as bound by WTO/GATT rules.
World trade has grown much faster than world output since WWII, as the GATT launched several rounds of multilateral trade negotiations after its debut in 1947.
Today world trade is overwhelmingly concentrated among WTO member countries, which made up 90 percent of total world exports under MFN tariff rates in 1997, compared to 87 percent in 1982.
Evidence shows that as post-war world trade kept expanding, many outward-oriented economies -- such as those of Taiwan, South Korea, Singapore, Hong Kong -- performed much better than those formerly inward-oriented economies -- such as India, Brazil, and China -- in terms of economic growth and improvements in living standards. Outward-oriented economies gain from trade through improved market access, technology diffusion, and the constructive market competition that rationalizes resource allocations based on each country's comparative advantage. Though the static gains of trade liberalization are often very small, the dynamic gains are enormous in the long run, according to economists' computable general equilibrium (CGE) analyses.
True, over the past two or three decades, trade liberalization was also accompanied by widened wage gaps in favor of skilled labor, particularly in the United States. This development seemingly accords with the prediction of the famous "Stolper-Samuelson theorem," which was published more than three decades ago in the international trade literature.
But empirical studies indicate that the main culprit of wider wage gaps is the rapid development of skill-biased technology, which increasingly devalues unskilled labor in job markets. Trade liberalization has at most played a negligible role, if any, in this regard.
The WTO's past success, however, may have paved the way for future failure in years to come, as its multilateral efforts begin to extend into thorny non-economic issues, such as human rights, ecology and environment, worker's rights and child labor.
These non-economic areas intertwine with the already-controversial economic issues, such as US antidumping laws, agricultural subsidies and protection, trade and investment in services, and the enforcement of intellectual property rights. The collapse of the Seattle trade talks was not surprising and might be an omen of more forthcoming failures into the next century.
In Seattle, acrimonious conflicts of interest arose within developed countries as well as between developing and developed countries. For example, the world's major agricultural exporters, led by the US, Canada and Australia, sought to liberalize trade in farm commodities in the Seattle talks, but they encountered formidable opposition from the EU.
For their part the EU, Japan and other WTO members called for a revoking of US antidumping laws, but the US government, under strong domestic pressure, opposed this. Many developed countries sought to link trade to worker's rights with the goal of enforcing a global labor standard, while developing countries, led by India and Egypt, refused this idea outright.
From the perspective of political economy, the WTO exists to overcome a classical dilemma for policy reform, which dictates that the costs of trade liberalization fall upon a few import-competing interests but the benefits are distributed thinly across mass consumers.
Consumers therefore have little incentive to stand up together against the opponents. In the past, the WTO successfully facilitated trade reform by changing the political equation to generate support for multilateral trade agreements. These agreements created a set of concentrated "winners" in member countries.
They are the exporting firms and multinationals. They stand to benefit from lower tariffs in potential export markets and therefore have an incentive to oppose import-competing firms.
Unfortunately, in the Seattle trade talks, the political balance was tilted against the exporting firms and multinationals, as the aforementioned economic and non-economic agenda was put on the table.
China is to complete its WTO accession next year. As the largest emerging market in the world, China has a notorious record of disobeying international norms. It is believed that China would complicate international powers' political wrestling due to its deep-rooted problems with human rights, labor standards, environmental protection, lax enforcement of intellectual property rights, and reforms of state-owned enterprises.
For sure, the undercurrent of global trade reform will be turbulent, as the world sails into the next century.
Lin Hwan-chiang is Associate Professor of Economics at the University of North Carolina.
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