The GATT (aka the WTO) works
There has been a dispute in the academic literature about the impact of the GATT on trade liberalization. The first shot was a set of papers by Andrew Rose. [1]. His papers have since been savaged by follow-up literature. [2]
The ongoing financial crisis has rendered this literature, quite literally, academic. What I mean is that, basically, the real test is what has just (not) happened. As Doug Irwin noted in his review of the GATT and its transition to the WTO, the first part of the 20th Century -- World War I and the early years of the Great Depression -- were characterized by savagely competitive tariff wars. [3] The framers of the Bretton Woods system had this firmly in mind when they set up the post-War system. [4] We may wonder at times exactly what the IMF and World Bank are doing at the moment. We no longer have to wonder about the GATT (aka the WTO). It is a systemic safeguard, and it seems to be working. Notice the deafening sounds of silence along Smoot-Hawley lines. Indeed, we have calls for further trade liberalization in the WTO. Recent events may also shed a new light on regionalism. In the academic literature, regional agreements have been seen as potential stumbling blocks to the multilateral system. Yet, as safeguards against protectionism in a big global crisis, the EU and NAFTA appear to be complementary safeguards. We have been focused, in much of the literature on the GATT and on regional trade negotiations, on the process of marginal concessions and terms-of-trade manipulation. Aside from all this academic analysis, in the real world the multilateral trading system is doing what it was actually meant to. There will be rising protectionist responses as we sink further into recession. However, as long as the system holds, this will not be broad based.
[1] A.K. Rose (2003), "Do WTO members have more liberal trade policy?" Journal of International Economics Volume 63, Issue 2, July 2004, Pages 209-235.
[2] A. Subramaniana and S-J Wei, "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Volume 72, Issue 1, May 2007, Pages 151-175.
[3] D. Irwin (1995), "The GATT in Historical Perspective," The American Economic Review, Vol. 85, No. 2, pp. 323-328.
[4] J. Toye and R. Toye (2005), "From Multilateralism to Modernisation," Forum for Development Studies, No. 1, pp. 127-150.
[5] K. Bagwell and R. Staiger (1999), "An Economic Theory of the GATT," The American Economic Review, Vol. 89, No. 1, pp. 215-248.
The ongoing financial crisis has rendered this literature, quite literally, academic. What I mean is that, basically, the real test is what has just (not) happened. As Doug Irwin noted in his review of the GATT and its transition to the WTO, the first part of the 20th Century -- World War I and the early years of the Great Depression -- were characterized by savagely competitive tariff wars. [3] The framers of the Bretton Woods system had this firmly in mind when they set up the post-War system. [4] We may wonder at times exactly what the IMF and World Bank are doing at the moment. We no longer have to wonder about the GATT (aka the WTO). It is a systemic safeguard, and it seems to be working. Notice the deafening sounds of silence along Smoot-Hawley lines. Indeed, we have calls for further trade liberalization in the WTO. Recent events may also shed a new light on regionalism. In the academic literature, regional agreements have been seen as potential stumbling blocks to the multilateral system. Yet, as safeguards against protectionism in a big global crisis, the EU and NAFTA appear to be complementary safeguards. We have been focused, in much of the literature on the GATT and on regional trade negotiations, on the process of marginal concessions and terms-of-trade manipulation. Aside from all this academic analysis, in the real world the multilateral trading system is doing what it was actually meant to. There will be rising protectionist responses as we sink further into recession. However, as long as the system holds, this will not be broad based.
[1] A.K. Rose (2003), "Do WTO members have more liberal trade policy?" Journal of International Economics Volume 63, Issue 2, July 2004, Pages 209-235.
[2] A. Subramaniana and S-J Wei, "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Volume 72, Issue 1, May 2007, Pages 151-175.
[3] D. Irwin (1995), "The GATT in Historical Perspective," The American Economic Review, Vol. 85, No. 2, pp. 323-328.
[4] J. Toye and R. Toye (2005), "From Multilateralism to Modernisation," Forum for Development Studies, No. 1, pp. 127-150.
[5] K. Bagwell and R. Staiger (1999), "An Economic Theory of the GATT," The American Economic Review, Vol. 89, No. 1, pp. 215-248.
Labels: Doha Round, financial crisis, GATT, protectionism, regionalism, Smoot-Hawley, WTO
posted by Joe Francois at
10:11 AM
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