International Trade Help or Hindrance

Ever since David Ricardo explained the Law of Comparative Advantage in 1817, it has been an article of faith that international trade is a good thing. Trade contributes to prosperity not only by rewarding the successful trader but by expanding the size of the overall economic pie so that, with good governance, there should be adequate slices for everyone. (See Box 14-1.) Trade contributes

Mark Halle is Director, Trade and Investment, at the Geneva Office of the International Institute for Sustainable Development.

New Approaches to Trade Governance

Box 14-1. Good Governance

Governance can be understood as the mechanisms used to ensure that a system or regime advances smoothly and effectively toward the goal it has set for itself and can deal efficiently and justly with the issues that arise along the way. The basic characteristics of good governance include:

• Transparency: People affected by decisions have timely access to accurate and up-to-date information on the issue, as well as information on the positions and proposals of the different parties.

• Participation: The right to take part in the debate or decisionmaking process links to the extent a stakeholder has interests at play or will be affected by the decisions.

•Accountability: Decisionmakers and the regime itself are answerable for their actions, decisions, and compromises in terms of the stated goals and objectives as well as any statements and declarations they make about their actions and decisions. Accountability includes access to justice for those with a legitimate grievance. In the case of the trading system, accountability seeks an accommodation with the claims of justice made by those who believe the trading system should support sustainable development.

Where the vision for society is well articulated in goals, objectives, and priorities and is broadly known and supported, the exercise of good governance is comparatively easier.Where the goals and objectives are vague, good governance can be near impossible.

Source: See endnote 2.

to peace by building both mutual dependence and a better understanding of the trading partner's character, culture, and motivations. Conflict among partners that share commercial interests would disrupt trade and hurt their shared economic interests, so they also share a strong incentive to keep the peace.2

Before looking at some of the small print that suggests a more sober view of trade liberalization and its track record, it is appropriate to acknowledge how much of trade theory actually translates into real benefits in practice. International trade has expanded massively since World War II and has accounted for a significant share of the economic expansion that the world has experienced. The gradual lowering of trade barriers in the second half of the last century accelerated both economic growth and the proportion of that growth attributable to trade.

With the expansion of trade, pressure grew to enshrine the rules that would facilitate open trade and prevent backsliding into pro-

tectionism. In a very real sense, it can be argued that the codification of trade rules and the creation of institutions to govern international trade were a response to trade expansion, not the cause of it. The rules and institutions were put in place to ensure that the trading system is as free of conflict as possible. As the perception grows that gross inequalities—or collateral damage to other areas of public policy, such as the environment—can also lead to conflict, the multilateral system is under increasing pressure to address these through the codification of practice and the creation of new ways to prevent such conflict.

Much of the trade expansion since World War II can be attributed to successive rounds of multilateral trade negotiations in the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). These trade negotiations have gradually, round after round, reduced and "locked in" successively lower tariffs and quotas, making them today a small fraction of

New Approaches to Trade Governance what they once were. Further, true to trade theory, a good deal of the growth in trade stems from unilateral decisions by countries to eliminate obstacles without seeking concessions from their trade partners in return or from the disappearance of trade barriers through regional integration arrangements.3 Trade's contribution to peace is also well documented. Violent conflict is significantly less frequent between countries that enjoy robust trade and operate open economies. In region after region around the world, the removal of trade barriers has been matched by the evaporation of armed conflict.4

So why does every successive step in trade liberalization appear to be a long, agonizing process in which microscopic advances are followed by long periods of deadlock, where hopes are continually dashed as endless last chances are missed? Why is it that, after six years of negotiation, the current Doha Round of WTO negotiations is stalled, with an increasingly large proportion of experts and observers wondering if it can be revived and concluded at all in the next few years? Why does the WTO—an institution built on the unimpeachable principles of non-discrimination, transparency of the conditions applying to trade, and peaceful settlement of disputes— face so much hostility?

The remainder of this chapter explores this basic paradox: Why does such a beneficial thing as trade excite such disapproval?

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  • alice
    How does international trade help the economy?
    8 years ago
    Why international trade has been expanded World War II?
    8 years ago

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