Trade agreements and trade policy

Yesterday, I noted that for all the changes that have taken place in the trading system since the world last faced such a dramatic downturn in trade and production, there remains one question now that is more or less the same as the questions posed in the 1930s:

"… will trade agreements help to forestall these policy mistakes and encourage collaborative solutions? Or does our experience of the disappointments of Doha and the "essentially directionless" WTO discourage us from once again turning to the grand multilateral solutions that, eventually, allowed the legatees of the 1930s depression to guide the recovery of the world economy (albeit more than a decade later)?" extract from Peter Gallagher | World trade: it’s not the 1930s

A little reluctantly, I answer 'yes': trade agreements can help to forestall the rising clamor for protection that seems inevitable as employment shrinks and capital lies idle over the next year or more. But the reason has little to do with the content of the agreements.

The assessment that WTO's attempts to deal with protection have been essentially directionless is one I agree with, but it is not mine. I am quoting from the paper presented to the "Alternative Frameworks" project workshop in December by Professor Peter Lloyd, a distinguished international trade economist.

I am skeptical that WTO's rules on border—or behind-the-border—trade measures will have a stronger sense of direction any time soon because, as the Doha experience proves, there is no global consensus that open markets, free of most government intervention and support are a globally desired goal. Even Australia's Prime Minister now reflexively scorns the moderate and sensible 'Washington consensus' in the name of his claimed democratic socialist faith.

Alhough I share Peter Lloyd's disappointment with lack of principle in WTO agreements, the content of any trade agreement matters much less than the content of trade policies. The beneficial impact of agreements on policies is due less to their content (it's all too easy to wriggle out of most WTO obligations) but to the process by which they are made. This process tends to promote a re-examination of trade policies and objectives; that may be a good thing in itself. Even narrow agreements (FTAs) or those lacking ambition or commitment (GATS) are able to provoke some domestic dialog on the impact of trade policies on welfare, income distribution and on international collaboration to promote global growth.

It's a weak defense of the trade agreements (hence, my reluctance in offering it) because governments are not compelled to undertake this domestic dialog in order to make trade agreements. But it is every negotiator's experience that having that dialog—it's not as simple as it sounds—is the best guarantee of a successful negotiation with well-defined objectives and 'resistance points'. So there are in-built incentives for this preliminary examination of trade policy.

A still more common danger is that the dialog will be a 'corporatist' one; limited to powerful coalitions of sectional interest and close relations with government. Consider some of the case studies on participation in WTO from my 2005 book (with Andrew Stoler and Patrick Low), now disseminated through the WTO website. For example, this "case study" on French trade policy formation, or this one from Venezuela on agricultural trade policy, or this from Kenya on the organization of consultation.

Tags for this entry: trade wto trade framework multilateralism washington consensus