Toward free and fair trade: a global public good perspective - Reforming Globalization - Statistical Data Included

Challenge, Sept-Oct, 2002 by Ronald Mendoza, Chandrika Bahadur

The world's rich nations have long preached the advantage of free trade for the world's developing nations. But it simply has not been a level playing field. This in-depth piece shows how and why. The authors argue that the free trade regime is often rigged against the developing nations, and they propose mechanisms to make trade not merely freer but fairer.

LESS THAN TWO YEARS AWAY FROM THE FIFTH WORLD TRADE ORGANIZATION (WTO) Ministerial Conference, to be held in Mexico in 2003, the multilateral trade regime today is at a crossroads. On the one hand, all recognize that expanded international trade potentially offers many benefits across countries, particularly those that seek to use it as a vehicle for growth and development. The facts bear this out: World Bank (2001) reports that trade has continued to expand for the world as a whole, 4.1 percent in 1999 and 13.5 percent in 2000, and for developing countries as well, 3.8 percent in 1999 and 19.2 percent in 2000. (1) Furthermore, the growth in global trade has continued to outstrip the growth in global output (see Figure 1). It is no surprise that development policy often includes expanded trade as its centerpiece.

Yet, trade has also become a contentious issue in the antiglobalization movement that has grown toward the end of the 1990s. Social and economic tension due to the expansion of international trade's reach into and impact on all countries, developed and developing alike, now prompts a reevaluation of the process that has increased the breadth and depth of the multilateral trade regime. Developing countries, in particular, need to reassess their development prospects as they become more and more integrated into this regime. It seems that inadequate attention is given to whether and to what extent the trade regime overall is coherent or consistent with the development goals of the countries it is intended to benefit, despite repeated policy statements by all WTO member countries that they intend to construct a regime that promotes development. (2) A reevaluation of the trade regime is therefore necessary, and that is the objective of this paper.

We contend that central to this reevaluation is the need to view and fully develop the trade regime as a global public good (GPG). (3) As a set of rules and institutions that facilitate trade, this regime displays the key public-good characteristics of nonrivalry and nonexcludability. And, as with all public goods, it should ideally be beneficial in a balanced and fair mariner to all parties utilizing and coproducing it. The GPG lens offers some new insights into the discussions on trade, which should prove useful in the new phase of negotiations after the Fourth Ministerial Conference at Doha (2001) and in the next WTO Ministerial in Mexico in 2003.

Balance in the Trade Regime

The multilateral trade regime--often referred to as the World Trade Organization--is primarily composed of the various trade agreements that serve as the legal ground rules for much of international commerce today. It began in 1947 with twenty-three contracting parties for the Protocol of Provisional Application of the General Agreement on Tariffs and Trade (GATT). (4) If we consider GATT-1947 a club, then both club membership and club rules have changed dramatically since its inception. Eight successive rounds of trade negotiations have since increased both the scope of membership in the trade regime and the range of areas covered within its discipline. In particular, the last two rounds of negotiations, the Tokyo Round (1973-79) and the Uruguay Round (1986-94), signaled an unprecedented deepening of the integration and harmonization of rules in the multilateral trade regime, as opposed to the previous trade rounds, which focused mainly on lowering tariff barriers. Among the key areas covered in these two ro unds were safeguards and the dispute settlement mechanism (in the Tokyo Round) and investments, services, and intellectual property rights (in the Uruguay Round). Most important, the WTO was launched as a consequence of the Uruguay Round, with the intention of possibly fostering further trade integration among a growing number of member countries. Today the WTO has 144 member countries, with at least 30 more planning to accede.

This expansion in membership, as well as the increased coverage and depth of rules, makes the trade regime a de facto global public good. That is, it has been made available to the global public through agreement among sovereign nations. To clarify, services provided by government(s) or public institutions can be considered public goods insofar as "they facilitate the conveniences of daily living and provide a measure of order and predictability to daily life" (Mendez 1992, 58). The trade regime certainly fits this description, by lessening the probability of costly "trade wars" through mutually binding codes in the conduct of much of international trade. Seen as a system that builds on deeper integration within a shared rule-based framework, the trade regime also provides benefits across nations by restraining costly and inefficient protectionism, fostering cost-reducing scale economies in production and distribution of goods and services, and helping prevent races to the bottom (i.e., investment policy) tha t would otherwise have occurred from competitive pressures (Birdsall and Lawrence 1999).