ARCHIVE - December, 2001

Toward a 21st Century International Trade Policy
Keith E. Maskus, Department of Economics, University of Colorado and
Visiting Lead Economist at the World Bank in Washington DC

At the Ministerial Conference of the World Trade Organization (WTO), held in Doha, Qatar in early November, trade ministers agreed to study a number of important questions facing the global system, with a view toward beginning negotiations two years from now. This accord is widely seen as a step forward for global trade liberalization. While it may turn out that way, I have a different perspective. What happened at Doha is that the major developing countries served notice to the United States, Japan, and the European Union that they wanted fundamental change in the WTO system. Developing countries are no longer willing to sit passively while the major powers establish rules that generate large benefits for their export interests, while offering little in the way of access to their own markets.

In the last round of WTO negotiations, the rich countries insisted on including agreements on protecting intellectual property rights, establishing sanitary standards, and making yet worse the ruinously protectionist rules on anti-dumping tariffs. In return they provided meager opening of their agricultural markets and agreed to phase out (by 2005) their quotas on apparel imports under conditions that few find credible. Moreover, the United States continues to slash its foreign-aid budget to historically low levels relative to GNP. That budget is nowhere near large enough to meet American commitments in technical and financial assistance to poor countries, let alone all of the other responsibilities it is supposed to discharge. To put it bluntly, the recent U.S. record may be described as foreign economic policy “on the cheap”.

How might international economic policies be re-oriented to include developing countries more fully in the gains from globalization? Three changes are necessary. First, the poorest nations cannot afford to implement and enforce some of the current rules. The most pressing example is their need to bypass patent rights in order to procure critical new drugs from the cheapest suppliers. This reality was recognized by a special agreement at Doha that I applaud and hope to see extended. Second, the essential needs of poor countries in health and education cannot be met with the meager foreign aid budgets now on offer. The United States and Europe should contribute the bulk of the monies called for in the Global Health Fund advocated by the UN.

Third, and most fundamentally, international trade is the well-spring of growth and poverty reduction for countries that have effective market access abroad. The most powerful way to raise growth prospects for poor countries is to open markets in rich countries for agricultural commodities and apparel. World Bank estimates find that if the rich nations markedly reduced their agricultural supports and fully implemented their commitments on apparel trade, income gains to developing countries could be as much as $500 - $700 billion per year. There is no conceivable way to provide foreign aid in comparable amounts. We need “trade and aid”.

Many argue that agricultural liberalization will harm farmers in the rich countries. So it will, but the damage to small farmers can be minimized through appropriate supports. Globalization critics should know that they cannot simultaneously favor income growth in poor countries and agricultural trade restrictions in rich countries. Neither can they legitimately favor tariffs on countries with putatively weak labor rights, for doing so would foreclose the main avenue to development. Foreign aid aimed at education and legal reform are far more effective.

It remains to be seen whether the rich countries will respond positively to this challenge. However, a failure could easily spell the end of the post-war global trading system. Many will read that sentence with joy, because they think that ending the WTO will end the problems of globalization and development. They are tragically wrong. The current global recession, which I believe will be deep and long-lasting, can be defeated only through expanded trade and investment. Otherwise we risk a repeat of the 1930’s, the last time the world’s policymakers decided to abandon their trade obligations.

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