Economics focus 
Is there any point to the WTO? 

Aug 4th 2005 

>From The Economist print edition

Does the World Trade Organisation promote trade? A reprise.

SUPACHAI PANITCHPAKDI, the softly spoken director-general of the World Trade 
Organisation (WTO), steps down this month with precious little to shout about. 
Not so long ago, he was hoping to announce a breakthrough in the Doha round of 
trade talks, which must agree on a template for cutting tariffs and subsidies 
at a big ministerial meeting in Hong Kong this December. But instead of ending 
on a high, Mr Panitchpakdi’s watch closed with kerfuffles over bananas and 

On August 1st, the WTO rejected the European Union’s (EU) proposed reform of 
its banana policy, which favours growers in its former colonies over cheaper 
plantations in Latin America. On the same day, Japan, traditionally a pacifist 
in trade wars, said it would retaliate against America’s abuse of the WTO’s 
anti-dumping rules. Japan will put an extra 15% duty on 15 American products, 
including forklift trucks and ball-bearings. With litigation and retaliation 
overshadowing negotiation, the high hopes invested in the Doha round look 
increasingly vain.

Were those hopes misplaced from the start? Perhaps so, according to Andrew 
Rose, of the University of California, Berkeley. In a much-debated paper*, 
first circulated in 2002 and published last year in the American Economic 
Review, Mr Rose failed to find any compelling evidence that the WTO or its 
predecessor, the General Agreement on Tariffs and Trade (GATT), promoted trade. 
Yes, trade has bloomed since the GATT was founded in 1948. But it has flowered 
for the system’s members and non-members alike. By this reckoning, the “hoopla” 
and “hype” that surrounds the WTO’s successes, failures and admissions of new 
members are just that: hoopla and hype.

Needless to say, Mr Rose’s results have generated much puzzlement and 
discussion, in this column (“Weighing up the WTO”, November 23rd 2002) and 
elsewhere. So which stands up better to scrutiny? Mr Rose’s results, or the 
WTO’s record?

One of the more interesting questions is also the most basic: who is in and who 
is out? A recent working paper† by three political scientists at Stanford 
University points out that perhaps as many as 78 countries were members of the 
post-war GATT in all but name. Counting these countries as members overturns Mr 
Rose’s damning verdict on the system, they claim. By contrast, another 
critique††, by Arvind Subramanian and Shang-Jin Wei of the IMF, argues that 
many countries are members of the WTO in name only. Discounting them also 
changes Mr Rose’s results.

The Stanford authors show that many colonies took on the rights and 
responsibilities of GATT membership, even if their names did not appear on the 
organisation’s roster. For example, all of France’s territories, except 
Morocco, had the agreement accepted on their behalf by the “mother country”. 
When they won their independence, many colonies remained de facto members for a 
twilight period, while they decided whether to sign up in their own right. They 
were joined by another group of countries, such as Switzerland and Israel, that 
became “provisional” GATT members for years before they were accepted as fully 
fledged insiders. If all of these dependants, wannabes and hangers-on are 
counted as members, the authors find that trade between GATT insiders is 72% 
higher than trade between outsiders. 


A poor showing
Messrs Subramanian and Wei take a different tack. They argue that poorer 
countries, even founding members of the GATT such as India, have not been true 
protagonists in the system. These countries enjoy “special and differential 
treatment”, which exempts them from any great obligation to liberalise. By the 
late 1980s, for example, developing countries had agreed to set ceilings on 
less than a third of their tariffs. And because the few ceilings they had 
established were typically higher than existing tariffs, they were not 

Exempted from so much, developing countries have had little to offer fellow 
members. They have a seat at the negotiations, but nothing much on the table. 
As a result, many of the sectors in which they enjoy a comparative advantage, 
such as agriculture, textiles and clothing, were neglected by successive trade 

Messrs Subramanian and Wei hope that this is changing. They show that 
developing countries, such as China, which joined the WTO more recently have 
been asked to open up much more as the price of entry. Nonetheless, the WTO and 
the GATT appear much more successful if developing countries are left out of 
the picture. Membership boosts the imports of rich countries by 175%, the Fund 
economists reckon. The WTO and its predecessor have done a “splendid job of 
promoting trade”.

Some of the other differences between their calculations and Mr Rose’s are more 
subtle and methodological. They look only at a country’s imports, not its 
exports. They also quarrel with Mr Rose’s treatment of regional trade 
agreements, such as the North American Free Trade Agreement. If two countries 
are members of such a pact, WTO membership adds little, if anything, to their 
trade with each other. Mr Rose holds this against the WTO. The two Fund 
economists think it is wrong to expect otherwise. 

But in the end, their disagreement is more apparent than real. Though they are 
fans of the WTO, Messrs Subramanian and Wei concede that it demands too little 
of its poorer members, is often superseded by regional trade agreements (where 
they exist), and has historically neglected agriculture, textiles and clothing. 
Aside from that, the two economists liked the play. Or, as Mr Rose wryly puts 
it, “if you ignore its many failures, the GATT/WTO has been successful.”

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