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

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

Where it is feasible, there is clearly a justification for policies to enable the players to become more equal. For instance, there is a need to enable developing countries to enhance their producers' ability to compete in world markets. The last point is especially compelling when one considers that even primary exports from developing countries still face numerous barriers in developed countries' markets. (10) Even more troubling, some means of protection actually create a bias against the processing of primary products by applying higher tariff rates for higher levels of value-added processing. For instance, developing-country exports of chocolate to the developed countries often face tariff barriers that are up to eight times higher than those that apply to unprocessed cocoa (UNCTAD 2000b). Such elements in the multilateral trade regime contribute to the factors that lock in the developing countries' comparative advantage in low value-added products, seriously impeding development efforts.

An additional yet equally important concern is the adjustment cost related to trade liberalization. Free trade dictates that the forces of competition bring about the efficient market outcome, but among unequal competitors, the relative costs of adjustment differ significantly. Potentially displaced workers in the United States, for instance, face more opportunities to move out of uncompetitive sectors, compared to displaced farmers in Africa. (11) Adjustment is typically more protracted and costly in the developing world for the obvious reason that there are fewer resources to help facilitate such adjustment. Another facet of these adjustment costs deals with the implementation of trade-related regulations and reforms (i.e., import-licensing procedures, customs valuation, sanitary and phytosanitary standards, trade-related legal reforms). With many compliance measures emanating from the industrialized countries that already have these regulations in place, a larger burden on the countries with meager resourc es is implied. This situation further justifies the argument to place more consideration on the inherent inequality in capacity across countries.

Hence, in the construction of the trade regime, a better balance must be struck between free trade and fair trade to make this GPG beneficial to all countries. Such a balance must necessarily be determined by all participants in the trade regime, and must be fair and just, ex ante. Only from such a standard can we even begin to consider the eventual outcome of trade to be balanced and fair. However, under what conditions will a balance between free and fair trade be accomplished?

Is There a Balance?

If one follows the policy statements in international organizations, including the WTO, one would expect that the international community has selected a balance that proactively generates development and "fosters an enabling environment for growth" (United Nations 1997). In fact, trade liberalization has constantly been sold to developing countries as one of the lynchpins of successful development policy, and is part of an approach more commonly known as the "Washington Consensus." (12) However, upon closer examination, a disconnect between rhetoric and actual policy on these issues becomes evident. Michel Camdessus writes: "In the Bretton Woods framework, governments reduced significantly the debt of thirty-five or forty heavily indebted poor countries. Yet these same governments have failed--in the framework of the World Trade Organization (WTO)--to launch a trade round to eliminate trade barriers for heavily indebted countries. Unless reversed, this failure will mock the decision on debt" (2001, 368).