March/April 2000

Policy Forum: “Seattle and Beyond: The Future of the WTO”

Brink Lindsey Brink Lindsey: "In addition to the possibility of an outdoor fiasco in Seattle there is the very real possibility of an indoor fiasco as well."
On November 17, 1999, two weeks before the World Trade Organization meetings in Seattle, the Cato Institute's Center for Trade Policy Studies held a conference in the Hayek Auditorium titled "Seattle and Beyond: The Future of the WTO." Center director Brink Lindsey delivered these prescient opening remarks.

Brink Lindsey: Up to now, the World Trade Organization has had a rough year: it has been plagued by intractable and inflammatory disputes between its two biggest members, the United States and the European Union, over bananas and hormone-treated beef. In addition, the choice of a new director general dragged on during months of sterile controversy and conflict

The outlook for the upcoming ministerial conference in Seattle is dimmed by what I call outdoor and indoor problems. As to the former, there has emerged in recent years an energetic and noisy coalition of especially strange bedfel-lows—ranging from Buchananites and Perotistas on the right to Naderites and environmental activists on the left—who regard globalization as evil and the WTO as evil incarnate. We will see these crusaders against global commerce outdoors on the streets of Seattle, where they will command an intense media spotlight and try to frame the ongoing debate over globalization in their chosen terms.

While admittedly the anti-trade zealots are relatively few in number, their rhetoric resonates with a much larger cross-section of American public opinion. It is this broad-based skepticism about the process of international economic integration, and its effects on ordinary Americans, that explains the ongoing (five and a half years and counting) absence of fast-track negotiating authority. This paralyzing skepticism has spread by default, as free traders have failed miserably in responding to the new grassroots anti-trade coalition. In particular, free traders have been so busy touting the benefits of free trade in other countries that they have neglected to make the case that open markets here at home benefit the overwhelming majority of Americans.

Meanwhile, in addition to the possibility of an outdoor fiasco in Seattle—a public relations fiasco as anti-trade activists grab all the headlines—there is the very real possibility of an indoor fiasco as well. Despite the lateness of the hour, WTO negotiators are still nowhere near the achievement of any kind of consensus on either the subjects that should be included in the new round or, for each subject included, what can and ought to be achieved. At present the positions of the major parties are separated by vast and perhaps unbridgeable differences. I would like to sketch out a strategic vision of the WTO that, if embraced by the United States and/or other major trading powers, would lead the WTO to a much more effective future than the one that presently appears to be in store.

That strategic vision starts with grasping two basic but underappreciated facts about trade liberalization. First, free trade is its own reward. Countries generally benefit from opening their markets regardless of what policies their trade partners choose to pursue. Open markets mean lower prices, wider choices, and more vigorous competi-tion—and therefore higher productivity and higher standards of living. That other countries are dumb enough to pursue dysfunctional, protectionist policies is no reason to deny ourselves the benefits of openness and competition.

The second fact is that, not only should countries liberalize because it serves their own national economic interest, but in the big picture that is precisely what they do. It is commonly assumed that countries reduce trade barriers only when they are either browbeaten into it by threats of retaliation or enticed into it by offers of better market access abroad. The facts show that this conventional wisdom isn't true. The past couple of decades have witnessed dramatic reductions in trade barriers around the world, and by and large those bold moves toward freer trade have occurred outside the context of trade negotiations. Countries as diverse as Australia and New Zealand, Argentina, Bolivia, Chile, Peru, the Philippines, Thailand, Indonesia, and India have decided unilaterally to forsake the old autarkic model of import substitution in favor of greater integration into the global economy. The driving force for sweeping change in those countries was not tough bargaining or the prospect of a quid pro quo but the realization that self-imposed isolation from the international economy was causing economic stagnation.

The idea that trade liberalization can only and should only occur through "reciprocity"—driven by international negotiations, which then impose obligations from above on national governments—can be called the "top-down" view of international economic order. That view is nonsense from the standpoint of economic theory and grossly inaccurate as a matter of history. In contrast is a "bottom-up" view, in which perceptions of national interest should be and are the major impetus for market opening. When countries perceive that it is in their national interest to open their markets, they do so—without worrying especially about what reciprocal offers of market opening they may receive. And on the other hand, when countries fail to recognize that liberalization is needed, negotiations are doomed to secure at best marginal gains.

In the bottom-up view, trade negotiations still play an important if limited role in advancing the cause of free trade. First, they strengthen the political prospects for dismantling trade barriers by adding the sugar of improved market access abroad to the political medicine of increased exposure to foreign competition at home. Second, they consolidate and institutionalize prior liberal-izing gains by enshrining them as internation-al obligations. It is important to recognize that if there were no WTO, trade liberal-ization would still be occurring. That said, the WTO deserves the support of free traders because with it reducing trade barriers is somewhat easier, and raising them again is somewhat more difficult than otherwise would be the case.

If the bottom-up vision of trade policy were the prevailing view in U.S. circles, the outdoor anti-trade movement that will soon flood the streets of Seattle would not have been allowed to build up by default. Free traders would have been making the case, without evasion or apology, that the United States' open markets are a strength, not a weakness—a foundation of our prosperity, not a vulnerability to a race to the bottom. Meanwhile, the indoor impasse would look much less intractable if the U.S. government took its own free-trade rhetoric seriously and exerted real leadership. Instead, U.S. negotiators demand that the rest of the world dismantle its trade barriers, while all of ours—including protectionist antidumping laws, punishing textile tariffs, absurd restrictions on imported sugar and peanuts, and vestigial high tariffs like the 25 percent duty on light trucks—are jealously defended as if they were the crown jewels.

Fidelity to the bottom-up vision would necessitate important changes in how WTO agreements are negotiated and enforced. First, the conventional "reciprocity" model of trade negotiations—premised on the protectionist notion that imports are harmful and trade barriers are strategic assets—would have to be abandoned. These ridiculous misconceptions are incorporated into official WTO parlance: commitments to open one's own market are called "concessions," while other countries' commitments to open their markets are labeled "benefits." This kind of thinking needs to be rooted out of the WTO. Otherwise, the conduct of trade negotiations ends up perpetuating the very fallacies that give rise to protectionist pressure in the first place.

Trade negotiators should abandon the old reciprocity model in favor of what can be called "coordinated unilateralism." Under the new approach, the goal wouldn't be to "win" at the bargaining table by "getting" more than you "give up." Rather, the express purpose of negotiations would be for each country to gain by reforming its own policies and to maximize that gain by linking domestic reforms to liberalization abroad. Reforming one's own policies would be a central negotiating objective rather than the downside of the transaction. This approach is discussed in fuller detail in the Center for Trade Policy Studies paper "Seattle and Beyond," but suffice it to say here that coordinated unilateralism still leaves plenty of room for tough bargaining. Under coordinated unilateralism, however, the focus would be on the integrity of the overall agreement, not on any country-by-country tallying of "concessions" given and received. Negotiations frequently follow the coordinated unilateralism approach in practice if not in rhetoric. The proposal here is to make the rhetoric match the underlying reality.

This article originally appeared in the March/April 2000 edition of Cato Policy Report.

Brink Lindsey is vice president for research at the Cato Institute.