Economics focus
Is there any point to the WTO?
http://www.economist.com/finance/displayStory.cfm?story_id=4251046
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 Panitchpakdis watch closed with kerfuffles over bananas and
ball-bearings.
On August 1st, the WTO rejected the European Unions (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 Americas abuse of the WTOs
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 systems members and non-members alike. By this reckoning, the hoopla
and hype that surrounds the WTOs successes, failures and admissions of new
members are just that: hoopla and hype.
Needless to say, Mr Roses 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 Roses results, or the
WTOs 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
Roses 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 Roses 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
organisations roster. For example, all of Frances 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
meaningful.
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
rounds.
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 Roses are more
subtle and methodological. They look only at a countrys imports, not its
exports. They also quarrel with Mr Roses 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.
---------------------------------
Start your day with Yahoo! - make it your home page
[Non-text portions of this message have been removed]
------------------------ Yahoo! Groups Sponsor --------------------~-->
<font face=arial size=-1><a
href="http://us.ard.yahoo.com/SIG=12hsh2qbi/M=320369.6903865.7846595.3022212/D=groups/S=1705329729:TM/Y=YAHOO/EXP=1123249847/A=2896110/R=0/SIG=1107idj9u/*http://www.thanksandgiving.com
">Help save the life of a child. Support St. Jude Children¿s Research
Hospital</a>.</font>
--------------------------------------------------------------------~->
***************************************************************************
Berdikusi dg Santun & Elegan, dg Semangat Persahabatan. Menuju Indonesia yg
Lebih Baik, in Commonality & Shared Destiny. http://www.ppi-india.org
***************************************************************************
__________________________________________________________________________
Mohon Perhatian:
1. Harap tdk. memposting/reply yg menyinggung SARA (kecuali sbg otokritik)
2. Pesan yg akan direply harap dihapus, kecuali yg akan dikomentari.
3. Reading only, http://dear.to/ppi
4. Satu email perhari: [EMAIL PROTECTED]
5. No-email/web only: [EMAIL PROTECTED]
6. kembali menerima email: [EMAIL PROTECTED]
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/ppiindia/
<*> To unsubscribe from this group, send an email to:
[EMAIL PROTECTED]
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
