trovers1es t at are a sent m 1scuss1ons o tra e wit 111

countries. Early chapters of this book demonstrated the Theoretical Perspectives:

importance of trade in the evolution of the contemporary Free Trade and Protectionism
global economic system. This chapter provides an intro­ Major Developments •
duction to understanding the political economy of the
modern global trading system. One striking feature of •
the contemporary international trading system arises • •
from the conflict between the continuing political
importance of the national border and its declining .
- - ...
economic relevance. Political conflicts over trade exist
simultaneously with the growth of transnational production (see Chapter 7), wherein production
by firms is less restricted by national frontiers than at any time in history.
This chapter provides an introduction to international trade through an examination of the
material and normative structures that constitute the international trading system. It begins with
a brief definition of some key terms, and an introduction to the importance of the means of
exchange. Next, we discuss some of the more important theoretical disputes and examine empir­
ical claims made by various proponents in key debates concerning the evolution and impact of
free trade. We then examine the major developments in the postwar international trading system.
These include the tremendous expansion in trade, the development of new forms of protection­
ism and the emergence and development of the regulation of trade through, first, the General
Agreement on Tariffs and Trade (GATT) and, latterly, the World Trade Organization (W TO). The
key issues considered in this chapter are the special needs of developing countries, the growth of
regionalism and the debate over the legitimacy of the trading system.

I Definitions
I
ti.
Simply speaking, trade refers to the exchange of one commodity for another. W henever two or
I
!
I
more individuals exchange goods and services, they are engaged in trade. Thus we can see that
trade has been a feature of all civilizations. Trade as an activity takes place domestically when two
II or more individuals exchange goods and services. International trade arises when the exchange
is conducted across national borders.
However, the content of what are considered tradeable commodities and hence part of the
international trading system has changed historically. W hile current definitions of international
trade highlight it as consisting of the exchange of goods and services, the latter has only recently
been integrated into the international trading system with the creation of the General Agreement
on Trade in Services (GATS) at the conclusion of the Uruguay Round of trade negotiations in
1995. Traditionally, many parts of the services sector were seen as principally confined to the
domestic economy and not subject to trade policy considerations. The increasing importance of
the services sector in national output, the deregulation of many service sectors previously held
l
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122
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DYNAMICS
(or alternatively, relatively less inefficient) compared with its competitors, it will be be_ tter off As
illustrated in Chapter 4, Ricardo's model discussed two countries and two products and showed
how, given different cost structures of production, trade was beneficial for both countries since it
enabled them to consume n10re than they would be able to without trade.
Under a liberal order, trade would be undertaken by countries according to their con1.parative
advantage. Countries would improve their econoniic growth and become more stable, powerfol and
efficient since they would be specializing in the production of goods and services in which they were
the most efficient producers and enabling their consumers to buy foreign goods at the lowest prices.
Specialization, in accordance with comparative advantage, promotes efficiency since, by definition, a
small market is an obstacle to growth. Ricardo's themy provides the basic principles underlying
modern trade theory. However, its assumption that differences in labour productivity were the sole
determinant of comparative advantage is too limiting, and modern trade theory focuses on factor
endowments (capital, land and labour). Developed by Eli Heckscher (1919) and Bertil Ohlin (1933),
factor endowment theo1y states that comparative advantage arises from the different relative factor
endowments of countries. Countries will have a comparative advantage in those industries that con­
centrate on the natural advantages or endowments of that country. For example, a country that has
a large poor population will be most efficient in industries that require cheap labour (such as textile
production), while a country with a large amou nt of fertile land and a small population will be better
off specializing in farming. Following this theory, it is not surprising that Bangladesh has a compara­
tive advantage in textiles and New Zealand has one in sheep and dairy products. Bangladesh has
greater factor endowments in labour, while New Zealand has the factor endowment advantage in
land. In this case, the Heckscher-Ohlin theorem would predict that New Zealand will export sheep
or dairy products to Bangladesh in exchange for textiles.
Liberal trade theory has been further refined to take account of the growth of intra-firm and
intra-industry trade, but these refinements do not challenge the basic underlying assumptions of
the liberal paradigm. Liberal trade theory does not enquire into the origin of comparative advan­
tage, that is, it does not ask how the different cost structures were established initially. It is also
prescriptive, since it suggests that the welfare of an individual country and that of the world as a
whole will be improved if countries specialize according to their comparative advantage. This
theory therefore prescribes free trade and warns of the dangers of pro tectionism. From a liberal
perspective, pro tectionism is inefficient, since it reduces competition and increases the monopoly
power and thu s the profits of the industries (or companies) that benefit from protection.On the
other hand, free trade increases the amount of products available to consumers, although u lti­
mately it may reduce the level of product differentiation in each country. The gains from trade
come partly from greater produ ct variety and partly from the lower price per product.
Free-trade theory emphasizes the gains or benefits from trade for a nation.There are two aspects
to the gains from trade: the static benefits deriving from specialization according to comparative
advantage and those deriving from and contributing to the process of economic growth and devel­
opment over time. In this view, trade is an engine of growth and generates a number of dynamic,
educative effects, including the diffusion of knowledge of production and organizational teclmiques,
and changed patterns of demand. Specialization leads to an increase in productivity and economic
growth. The theory of comparative advantage, it is argued, is relevant for all countries. Free trade
offers hope for low-income countries, whereas protectionism harms poor countries (see Box 6.1).
Liberal trade theorists argue that specialization brings the likelihood of an improvement in skills and
an increase in workforce productivity.They contend that since the export sector can act as a stimulus
to the economy as a whole, and foreign investment accompanies increased trade, developing coun­
tries will be better off under a free-trade regime. Liberal economists argue that the evidence shows
that technological progress has been faster, all other things being equal, for countries that have been
increasing their openness to the international flow of goods, services, capital, labour, technology and
ideas. Low-income developing countries can import technologies and information at virtually zero
INTERNATIONAL TRADE
c�st, whether e�licitly (the actual process or plan) or implicitly (through the goods themselves).
123
Liberal econmrusts msist that the process of innovation and the diffusion of knowledge are linked to
mternational trade and are crucial for growth.
Although tl �e theory of comparative advantage is theoretically elegant, it has consistently been
attacked �y cntics. Despite these attacks, the theory has been sufficiently robust to withstand
these vano u s critiques. W� now discuss two schools of thought critical of the liberal arguments
111 support of free trade. First, we exanune the app roaches of writers who can, broadly speaking,
be grouped together under the umbrella of economic nationalism (mercantilism and neomer­
cantilism).We then look at variants of critical theory.
6.1 The costs of protectionism: a liberal perspective
Many oppo�ents of liberal trade argue that further liberalization damages the interests of people in
poor countries. However, the liberal theories examined above suggest the reverse. In other words it
is protectionism rather than free trade that hurts the global poor in developing and developed stat�s.
Protectionism may be in the interests of some producers but overall it has a negative impact on
consu �ers 1n nch and poor countries. While there is no agreement on the precise amount by which
_
�mtection,sm 1n rich countries negatively affects poorer countries, the general consensus is that it
1s s1gn1ficant (Tokarick, 2008) and negatively impacts trade and growth (OECD, 2010). Furthermore,
stud,e� show that protectionism or unfair trade practices hit precisely those sectors where poor
countries have the greatest potential to reap gains from trade, and thus impact the poorer segments
of soCJety (Goldin and Reinert, 2007, p. 61). An International Food Policy Research Institute study has
calcula�ed that rich countries' agricultural protectionism costs developing countries around US$24
billion 1n lost income (Diao et al., 2003, p. 2). The authors note that trade-distorting measures
account for another US$40 billion of Jost agricultural exports from the developing world. Another
study has concluded that although reform of the EU's Common Agricultural Policy has reduced its
trade-distorting impact on world markets, heavy subsidies to European farmers nevertheless result
in significant losses for some developing countries' producers (Matthews, 2008).
Liberal theorists contend that protectionism in OECD countries also has a detrimental effect
on the host country. For example, it has been estimated that US protectionist policies cost us
consumers $70 billion in 1990, more than 1 per cent of gross national product (GNP) (Hufbauer
and Elliott, 1994). Another study of US protectionist practices claimed that the loss suffered by
consumers was three times greater than any gains to workers (Krol, 2008).
Critics of free trade
Mercantilists of bygone eras and economic nationalists or neomercantilists in today's era advocate
_
the regulat10n _of economic life to enhance state power or pro tect a variety of national groups
from competltio�. S u pport for protection comes from groups who argue that the protection of
local product10n mcreases national (usually economic) welfare. Many people are willino to foroo
absolute gain _for relative gain; that is, in an anarchical international system, states in ; u rsuit :f
power may give pnmacy to the relative gains from trade and adopt protectionist measures in
order to stabilize their economies even though it diminishes their absolute gains from trade.
Some state-based critiqu es of liberal trade theory have focu sed on the prescriptive power of
the theory, and others on the accuracy of its empirical claims. Two arguments have been made
�onsistently smce the 19th century diminishing the desirability of free trade. The first argument
is the so-called 'infant ind ustry' case. Supporters of industrialization argue that predominantly
a gncultural countries will experience obstacles in their attempts to industrialize, since compara­
_
tive advantage dictates that they continu e to import industrial products, whereas they may well
1rr--t-�:____:�:....::_:_:_
124 DYNAMICS
.::::::_________________________
have a fu ture comparative advantage in the production of industr ial products.The infant industr y
aroument makes the case for temporar y protec tion fo r industr ies likely to become competitive
01� the wo r ld stage. This perspective is n ot sim.ply about individual indu stries but is tied to a
wider societal vision. The process of industr ialization, in this view, will be hindered in the absence
of effective protection of fledgling local industr ies, thus providing support for a policy of tariffs
and o ther protections for new domestic industries. P rotection should be given to these industr ies
until they become competitive and can reap the benefits of comparative advantage.
Histor ically, protectionist policies, by providing the opportunity to devel op economies of
scale and domestic market stability, have been important and perhaps necessary c on1.ponents of
govenm1.ent-led str ategies of economic g rowth and restructuring in countries such as Ger many
and the US (Chang, 2002). According to advocates of this form of protection, gover nments
should intervene to protect those industr ies that have the potential to develop efficient produc­
tion but which at the moment would be destroy ed by fierce inter national competition. In
societies that have already industr ialized, infant industry arguments are mobilized in favour of
postindustr ial areas of economic activity. For example, a countr y ni.ight be concer ned about
enter ing mar kets in the industr ies of the future such as nanotechnology or biotechn ology.
Some liberal theorists are willing to accept the infant industry argument as an exception to
standard comparative advantage theory. H owever, w hile providing suppor t for temporary for ms of
protection, they stress an inherent problem with the infant industr y argument. Domestic producers
are unlikely to willingly renounce the protection from which they benefit, and agreement on the
point at which protection is to be discontinued may therefore prove politically difficult even though
the economic arguments are compelling. H ow is a government able to determine w hat needs pro­
tection and for how long? Is a gover m1.1.ent likely to make a better decision than the market?
The second 11.istor ical argument against free tr ade claims that the dictates of national secur ity
t ake precedence over trade. In oth er word s, countr ies need to b e self- sufficient in the production
of certain stra tegic industries. These may be related directly to the waging of war or they may
refer to foodstuffs. W hether items are n ecessar y for the di rec t defence of the nation or food
secur ity, dependence on exter nal markets can threaten a nation's security. In the interests of
national secur ity, countr ies are ur ged to temper suppor t for free trade with policies protective of
national secur ity. It is widely accepted that if free tr ade j eopardizes other non-econoni.ic objec­
tives such as national sec urity, it is necessar y for gover nments to impose restrictions in order to
protect society. F rom di.is perspective, the real income gains that motivate free trade ca1mot be
separated from the security exter nalities that can either impede or facilitate it. Trade with an
adversar y can be harmful to a nation's secur ity, while trade with an ally can support a nation's
secur ity.Although states resort to economic wa1fare and use economic sanctions in cases of con­
flict, it can be ar gued that the secur ity dimension of trade is alway s present.
The infan t industry argument and the national secur ity argument have a long 11.istorical pedi-
gree. Two further arguments for protection have emer ged to l end suppor t to the state-based
cr itique of free tr ade. First, strategic trade theory (Kr ugman, 1986, 1987) ar gues that coun tr ies
should pursue competitive advantage in those industr ies of future economic benefit to the nation
w here the socioecononi.ic costs of falling behind competitor s are huge. For example, Europe, the
US, B razil and Canada all subsidize their aerospace industr y because of the large number of
11.ighly paid technological jobs associated with the sector. Second, a number of gover nments and
domestic groups concerned about the impact of globalization on their culture have argued that
protectionist measures should be implemented to protect the national culture. In the face of
globalization, many analy sts war n that distinctive cultura l practices will be swamped by the
import of goods and ideas from abroad. Cultur al protection in relation to film s, media and com­
munications technologies is therefore suppor ted by those w ho want to resist w hat they see as the
undesirable consequences of gl obalization.
INTERNATIONAL TRADE 125
We can identify th ree different strand s of the critical or radical cri tique of free trade. The one
with the longest histor ical legacy is th e unequal exchange perspective.Wr iter s in this perspective
have a Marxist her i tage and provid e a powe1ful social justice cr i tique of liber al trade principles.
Although a smgle unequal exch ange perspective does not exist, broadly speaking we can discern
three main par ts t o th is critique. First, these w r iters stress the impor tance of histo rical power
relation s in the creati on of comparative advantage (Fr ank, 1967). Unlike liberal analy sts w ho take
comparative advantage as a given, unequal exch ange theorists enquire into the constr uction of
different cost str uctures across nati onal b ord ers and argue that many have been deter ni.ined by
_
imper ialist pl under. For example,Jamaica may h ave a compar ative advantage today in sugar, bu t
that i s b ecause c olmi.ial powers imported th e sugar crop from the M editer ranean and then forced
an African slave labour force to wor k on its plantations.
The second aspect of th e unequal exch ange perspective is an emphasis on the redistributional
benefits of free trade. It emph asizes the unequal gains to par ticipants in international exchange,
wli.ich, it is ar gued, freeze the status quo and make it difficul t for poorer countr ies to develop, and
emph asizes the c oncentration of ec onomic power in the hands of th e weal thy (C oote, 1992;
Oxfam Internati onal, 2002). Within the current world order, trade from this perspect ive sustains
the activities of TNC s and large bureaucracies (gover nmen t depar tmen ts or regional organiza­
t10ns) at the expense of peasants and work er s (Mad el ey, 1992). A th ird variant of this perspec tive
was d eveloped by A rghiri Emmanuel (1972), a Greek-French Marxist, w ho argued that tr ade
sy stematically discr ini.inated against devel oping coun tr i es b ecause of th e lower wage rates in
developing countr i es. Enm1.anuel assumed th at l abour productivity did not var y between r ich
and poor countri es and therefore th e product of labour was equa l in r ich and poor countries. But
since the prices of good s produced by rich c oun tries reflec ted their high wages and those pro­
duced by poor countr ies reflected their low wages, the exchange was inherently unequal since
good s produced by r ich countr i es conunanded a higher pr ice internationally.
Another radical ar gument in favour of protection i s mad e by enviromnental activists (Ekins,
1989; Mor ris, 1989), who claim that free trad e contr ibutes to enviromnental deg radation. They
argue that the exter naliti es of trad e are oni.itted from standard trade theory (Clapp and Dauver gne,
2011, pp. 129-30). Enviro1m1.entali sts contend that cur rent tr ading pr actices are unsustainable
and they campaign for a retur n to local trade (Shr ybman, 1990). This is discuss ed in more d etail
in Chapter 12, but an interesting example is how the expansion of the Ne w Zealand dairy indus­
tr y h as l ed to widespread water pollution (see B ox 6.2). Feni.inist sch olar s have also tur n ed their
attention to the ge ndered nature of trade, arguing that trade is not gender neutr al (Samson, 1995;
van Staveren et al., 2007). In conunon wi th human r ights and enviromnental activists, feni.inists
argue that trade th eory h as ignored th e social costs of tr ade (Fontana et al., 1998). Similarly, schol­
ar s and activists wanting the incorpor ati on of lab our rights (Ver ma, 2003) and human rights
issues m to trade (see Abb ott et al., 2006; Donm1.en, 2002) have also explored way s of incor por at­
mg these concer ns into the traditional paradigm.
In the mid-1980s, New Zealand adopted a wide range of neoliberal economic reforms, which included
putting its agricultural industry on a more market-oriented basis by eliminating agricultural subsidies.
The sheep and beef sectors suffered, but the dairy industry, which was not reliant on subsidies, thrived.
Resources shifted into the dairy industry and its importance to New Zealand's economy increased. New
Zealand became the world's largest exporter of dairy products, the number of cows increased from
2.4 million in 1992 to almost 5 million in 2018 and the dairy industry's share of New Zealand's exports
increased from 14 to 28 per cent between the early 1990s and 2018 (Bain and Dandachi, 2015; Dairy
NZ, 2018). Industry expansion increased the amount of land occupied by dairy farms as the activity
J_
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1� :::_
DYNA
2 6 _----=. MICS
_::_::_::___:_______ ____________________ ____
spread to new parts of the country. The intensity of farming also increased as more cows were raised in
closer proximity to each other. It has been an economic and trade success story.
The dairy industry's exporting success has also created a large environmental problem. The
doubling of the number of cows and expansion to new areas greatly increased the amounts of
fertilizer and animal waste polluting su rface and ground water. Two-thi rds of New Zealand's rivers
are unswimmable and three-quarters of New Zealand native freshwater fish species are threatened
with extinction because of agricultu re-generated pollution. In addition to the threats posed to
human health, pollution threatens New Zealand's green and clean image, which is vital to its tourism
industry. In 2019, the government adopted a series of regulatory measu res meant to address the
pollution issue, but New Zealand farmers protested, claiming they were 'being thrown under the
tractor' (Roy, 2019).
In this section, we have examined co111.peting perspectives on the relationship between free
trade and national and/ or world welfare. We have argued that modern international trade theory
provides a normative framework for the conduct of international trade. It furnishes an explanation
of, and justification for, trade. Thus, despite the claims of standard neoclassical economics, trade
theory is ideological and political. This does not mean that its analy tical tools, prescriptions and
conclusions are to be rejected as biased and unscientific. Rather, this recognition brings to the fore
the fact that trade theory is not only socially constructed but is the subject and object of its own
analysis. Actors in the trading sy stem are influenced by the writings of trade theorists. The crucial
point is that the 'reality' examined by trade theory is itself partly constructed by trade theory.
Moreover, it is arguable that even if the principle of comparative advantage is applied on a
global basis, the gains from trade will be evenly distributed. In the short term, it is likely that free
trade will result in an unequal distribution of costs and benefits, thus undermining the basis for
adherence to free-trade policies since those countries and groups losing out will resort to pro­
tectionist measures such as tariffs or subsidies.
Major Developments
There have been two notable developments in the world trading sy stem since the end of the
Second World War. One has been a large increase in the volume of world trade and accompany ­
ing changing forms of protectionism as states struggle to cushion the dislocations caused by trade
liberalization. The second has been the transformation of the institutional arrangements govern­
ing world trade. The failure of states to create an International Trade Organization (ITO) after
the Second World War left the GATT as the primary international framework governing trade
relations. In 1995, the GATT gave way to the new WTO, an indication of a further institution­
alization of trade rules.
Growth and protectionism
Since the end of the Second World War, trade has increased more rapidly than production, which
is a clear indicator of the increased internationalization of economic activities and the greater
interconnectedness that has come to characterize the world economy. Between 1945 and 2007,
growth in world trade consistently outstripped growth in world production. In this period, world
production doubled but international trade grew more than fomfold.
The onset of the global economic recession in 2008 led to the largest contraction in world
trade (in 2009) since the Great Depression of the 1930s, with world trade falling by 12 per cent
(WTO, 20 1 1 , p. 1 9) . While the impact of the recession on trade was short-lived, with trade
volumes increasing by 14 per cent in 2010 (WTO, 2012, p. 21), world trade has grown slowly
following the 2008 recession. In this section we review the developments in international trade
INTERNATIONAL TRADE 12 7
between 1945 and 20 1 8.
There are some noticeable features of world trade growth in the postwar period and these are
discussed below. We focus on the magnitude of trade, its geographical concentration, the com­
modity composition of trade and the growth in intra-industry and intra-firm trade.
The growth in trade has been uneven and there have been periods of recession when trade
growth slowed, but overall the trend has been positive. For example, the WTO (1998) calculated
that merchandise exports grew on average 6 per cent per annum between 1947 and 1997, and that
total trade in 1997 was 14 times the level of 1950.These trends continued in the 21st century until
the onset of the global financial crisis in 2008. Betvveen 2000 and 2005, world merchandise trade
grew approximately 10 per cent (WTO, 2006, p. 11), although there was some slowdown in 2006
and 2007, with annual increases of 8 per cent and 5.5 per cent, respectively (WTO, 2007, p. 2, 2008,
p. 2). Trade growth has since fluctuated, with sizable increases in 2010 before falling again in 2011
and 2012 (UN, 2013, p. vi) but recovering in 2013. In the wake of the global financial crisis, world
trade has remained sluggish and has not recovered a consistent dy namic upward trajectory (see
Table 6.1).While growth has been slow and seems unlikely at present to develop new momentum,
nevertheless these statistics indicate that in the postwar world order, trade has been an important
sector in the contemporary global economy and a main agent of economic growth.
The relationship between trade and growth has been intensely debated during this period,
especially since it is an important consideration for countries trying to promote economic devel­
opment. The consensus among economists is that trade promotes growth. Countries with an
open economy engaging in international trade have pe1formed better than those countries
where policy has restricted domestic access to foreign products. The relation between trade and
economic growth is twofold. First, trade acts as a stimulus to the local economy, providing it with
resources cheaper than it would cost to produce them domestically. Trade thus raises the produc­
tion possibility frontier, enabling countries to consume more than they would have done in the
absence of trade. The relationship between consumption and growth is discussed below where
we show the importance of consumption to contemporary economic growth. Second, trade
forces domestic producers to manufacture goods to world market standards, thus increasing
productivity and product quality. This leads to a more efficient use of resources.
In the light of these arguments, it is possible to see one of the reasons for the failure of Soviet­
style conununism. Instead of embracing trade, conrnmnist authorities approached trade with
suspicion, viewing it as a source of economic leakage rather than, as it turned out, a source of
economic strength. Trade remained a residual element in national economic plans where the
Table 6 . 1 Growth in the vol ume of world exports and prod u ction by major product groups,
2010-17 (percentage change)
2010-17 2015 2016 2017
World merchandise exports 3.0 2.3 1.6 4.5
Agricultural products 3.0 1.8 -0.9 6 .7
Fuels and mining products 1.1 1.8 0.8 0.1
Manufactures 34 2.3 0.8 4.9
World GDP 2.6 2.8 2.3 3.0
Note: World merchandise production differs from world G D P in that it excludes services and construction.
Source: WTO (2018a, p. 120)
128 DYNAIVI ICS
Table 6.2 Percentage share of world merchandise trade by region, 2017
Region Imports
100
18.7
South and Central America and the Caribbean 3.3
37.8 Europe 37.1
Africa 3.0
Middle East 4.1
34.0 Asia 31.5
Source: WTO (2018a, pp. 122-3)
drive was for self-sufficiency. Even the attern.pt at integration through the Council for Mutual
Economic Assistance, the Soviet-dominated trading organization, was predicated less on explor­
ing dynamic comparative advantage through the benefits of specialization than on protecting
what were perceived to be national interests.
Not only has overall trade growth been uneven, it has also been so in respect of different
countries and regions (see Table 6.2) . World trade in the postwar period historically clustered
around Europe and North America. However, the rise of China (and to a lesser extent India) has
seen a rise in the share ofAsia in world imports and exports.While developed countries continue
to account for the majority of world trade, the historical irn.balance in shares of world trade
between developed and developing countries appears to be shifting. A steady increase in devel­
oping countries' share of world trade was further stimulated by the global economic crisis. In
1980, developing countries accounted for 34 per cent of world trade but this had risen to 47 per
cent by 2011 (WTO, 2013, p. 5). Exports and imports from the emerging market economies have
benefited from increased trade volun1es (UNCTAD, 2013, p. iii). Moreover, South-South trade
grew from 8 per cent of world trade in 1980 to 24 per cent in 2011 (WTO, 20 13, p. 6), and by
20 1 4 South-South trade had reached almost $5.5 trillion, although it fell to $4.4 trillion in 20 16
(UNCTAD, 2017, p. 10)
Whereas the theory of con1.parative advantage predicts that trade will grow fastest between
unlike economies, postwar trade growth has seen the reverse of this proposition. In the 1950s and
1960s, trade grew fastest in manufactured products. In 1945, the commodity composition of inter­
national trade reflected the sectoral composition of output in the leading economies and was there­
fore mainly composed of merchandise trade. But as services beca.me the dominant sector in
industrialized economies, so the trade in services has expanded, with the result that one of the
major developments in the international trading system has been the rise of trade in services.While
trade in services is not the largest sector in world trade, it has been the fastest growing sector.
The term 'intra-industry trade' refers to the situation where trade occurs within the same
industry rather than between industries. One of the main features of postwar trade growth has
been the phenomenon of intra-industry trade. Countries have exchanged similar products where
price and product differentiation have played an important part. In consumer goods, we have
seen the exchange of consumer durables, so that although the UK, for example, produces motor
vehicles and washing machines, it also imports these items from other OECD member countries.
International trade has supported horizontal and vertical integration. The growth of intra­
industry trade has also been matched by the growth of intra-firm trade. The rise of the TNC and
a global production system (see Chapter 7) has stimulated intra-firm trade. An increasing
I NTERNATI O NAL TRADE 129
percentage of world trade takes place within firms rather than between separate, individual firms.
One of the crucial implications for trade theory and national govermnents is that if trade takes
place within a TNC, it is not responding to free-market signals. In these cases, trade is driven not
by comparative costs but by the firm's management decisions.
The period 1947-73 was one of unprecedented expansion for the world economy, with out­
put and trade growing faster than in any previously recorded period. Global output expanded at
an ammal average of 5 per cent, while exports grew at 7 per cent per annum. This provided an
economic climate conducive to trade liberalization, and it was against this background that pro­
tectionism was reduced on manufactured products. A number of significant structural changes
took place between 1947 and 1973. The most important change was the shift away from a
traditional dependence on the export of primary co1m11.odities to the increasing specialization in
labour-intensive, low-tech manufactured products by a number of developing countries, such as
India, Brazil and the East Asian newly industrializing countries. These developing country
exporters took advantage of expanding markets in the developed economies and the contraction
of productive capacity in some sectors in OECD countries as the dynamic comparative advan­
tage of developing countries became evident. Industries such as textiles and footwear were ini­
tially developed in industrialized countries but during this period the technological know-how
associated with these activities was diffused to some developing countries.
During the long boom (1947-73) , it was relatively easy for developed countries to make the
necessary adjustments to imports of manufactures from the developing world because the
employment-creating effects of international trade outweighed the employment-displacing
effects. The outcome of these developments was that the benefits of trade were obvious and, by
and large, consumers and producers willingly acquiesced in the trade liberalization process. Thus,
protectionist pressures were specific rather than general.
With the downturn in the world economy following the first oil crisis in 1973-74, unem­
ployment grew and became a critical political issue in the industrialized world. The importance
of the recession of 1973-75 was to focus the attention of various pressure groups on the per­
ceived connection between foreign trade and domestic employment, that is, on the link between
employment displacement and import penetration. Employment preservation through the
restriction of imports became an acceptable means of preventing unemployment from rising.
What characterized this period was the resort to non-tariff instruments of policy. Countries
abandoned the use of old protectionism in the form of tariffs for new protectionism using 11011-
tariff barriers (NTBs) . Because they were the most vulnerable, discrimination against developing
countries grew at an alarming rate. As an OECD report declared:
developing countries have in practice been most exposed to . discriminatory export
restraint agreements and other trade distorting measures, with the incidence of this
discrimination being greatest in those sectors in which they have a comparative advantage.
(Goldin et al. , 1993, p. 22)
If structural change accounted for the onset of protectionism, it was the existence of the GATT
that shaped the forms the new protectionism would take. The 1947 GATT Articles provide for
the introduction of restraints under certain designated circumstances. For example, Article XIX
condoned the use of import controls for the emergency protection of domestic industry.
Recourse to these 'escape clauses' became increasingly prevalent in the 1970s, as the major devel­
oped countries made more frequent use of the protectionist option. However, recourse to Article
XIX was rather limited, since many countries taking protectionist action preferred to evade
GATT stipulations on non-discrimination and reciprocity, and therefore turned to extralegal
alternatives that suited their purposes better than Article XIX.
130 DYNAMICS
The most widely used NTBs were voluntary export restraints, import quotas, product
standards, including regulations pertaining to health and technical safeguards, and anti-dum.ping
measures and countervailing duties, which are still drawn on today. An example of the use of
health standards to discriminate against imports is given in Box 6.3. The negotiation of a volun­
tary export restraint allowed action to be taken on a discriminatory basis, a facility unavailable
under Article XIX. In order to appease pressure groups at home while doing little to impair
export prospects, governments followed the path of least resistance. This period also saw the
mushrooming of administrative controls such as the use of health, safety and environmental
standards. Protectionism also took the form of subsidies and governn1ent procurement policies.
This move from GATT's rule oflaw brought with it a heightened absence of transparency, given
that non-transparency is a property of NTBs.
The rise of new protectionism and the failure of the GATT to rem.edy these developments
contributed to dissatisfaction with the organization's pe1formance. This issue is addressed in the
next section. The creation of the WTO provided a boost to liberalizing forces and it appeared
that protectionism was in retreat. However, the policies of US President Trump, elected in 201 6,
brought protectionism once more to the forefront of trade policy (see below) . The long-running
confrontation between advocates of trade liberalization and those of protectionism has become
a critical issue in the contemporary global economy.
The EU first banned the importation of hormone-treated meat in 1989, arguing that injecting livestock
with bovine somatotropin (BST) posed a health risk to humans. BST, a growth hormone produced by
beef cattle, was in use by major meat-producing countries including Canada and the US. Scientists from
meat-exporting countries that used BST argued that it was safe, but consumer groups in the EU and the
European farm lobby protested that hormonal irregularities or cancer would result from its consumption.
Was this a genuine health issue or a form of disguised protectionism? The EU claimed that it was a health
issue, but producers affected by the ban argued that it reflected an attempt to protect the inefficient
EU meat industry. At the centre of the dispute is whether the EU's ban is in compliance with the WTO
Agreement on the Application of Sanitary and Phytosanitary Measures (the SPS Agreement).
In 1997, the WTO's d ispute settlement panel found the EU ban to be incompatible with its
obligations u nder the SPS Agreement. In 1998, the WTO's Appellate Body confirmed that the
European ban on hormone-fed beef violated its rules, but noted that the EU ban wou ld be justified
if convincing scientific proof could be provided concerning the health risks of hormone-treated
beef. The outcome from the WTO process supported the contention of meat exporters to the E U
w h o h a d lost revenue as a result of the E U b a n . For example, US red meat exports t o t h e EU fel l
from $231 million in 1 9 8 8 ( a year before t h e ban) t o $98 million i n 1 994. Despite this ruling, deep
scepticism remains among EU consumers.
Since 2003, the EU has cited new scientific evidence as the basis for its import restrictions in a n
attempt t o make the EU ban consistent with the WTO's ruling, a n d t o evade trade sanctions that had
been imposed since J u ly 1999. In October 2008, the Appellate Body permitted the E U to mainta in
its restrictions but a lso granted Canada and the US the authority to impose trade sanctions tota l ling
i n excess of US$ 1 2 5 million a n nually. I n March 2012, the E U settled the beef dispute with Canada
and the US by agreeing to increase the imports of non-hormone-treated US beef by 25,000 ton nes
(E Ubusiness, 2012).
The issue of health and agriculture trade between the US and the E U is ongoing. Attention has
shifted from hormone i njections for cattle to the US practice of cleaning pou ltry with chlorine.
Sources: Bridges Trade BioRes (2009); EUbusiness (2012)
INTERNATIONAL TRADE 131
The growth in world trade in the 2 1 st century has been uneven, reflecting the global eco­
nomic cycle. Nevertheless, it is possible to discern the em.ergence of a new geography of trade
centred on the rapid growth of developing economies. Concomitant to rising growth rates and
increased shares of global GDP, developing countries as a group have developed a larger stake
in the world trading system (UNCTAD, 2013, p. 6) . These changes have taken place in mer­
chandise trade as well as trade in services. Of course, these trends are uneven. First, not all coun­
tries have experienced significant growth. The growth has been spurred by countries such as
Brazil, China and India, which have emerged as important hubs of economic growth and trade
in n1.anufacturing, services and agriculture and commodities. As the World Irade Report 2 0 1 3
(WTO, 20 1 3 , p. 268) notes: 'especially China, but also India and Brazil have transformed the
balance of power in the multilateral trading system' . Second, developing country shares in world
trade have not maintained an upward curve but have fluctuated. For example, in 201 6, develop­
ing countries' share of world merchandise exports decreased from 43 .4 per cent in 201 5 to 42
per cent, and their share of world imports decreased from 40. 9 per cent in 20 1 5 to 39. 7 per cent
(WTO, 20 1 7 , p. 60) . Similarly, in 20 1 6, developing countries' share of world exports of services
decreased from 30.8 per cent in 20 1 5 to 30.5 per cent, and their share of world imports of ser­
vices decreased from 38.6 per cent in 20 1 5 to 38.3 per cent (WTO, 20 1 7 , p. 64) .
Changing i n stitutional arrangements
The origins of the postwar international trade regime are to be found in Anglo-American
cooperation during the Second World War. The liberal trade regime that was created reflected
primarily US interests. American preference for open market arrangements and the imposition
of a multilateral rule-based system to limit national action is at the centre of the regime. Two
particular issues were of concern to US policy makers - British imperial preferences and the
system of protection that had developed in Latin America during the war. The US therefore
proposed a non-discriminatory, multilateral system of trade and payments. In practice, this meant
provision for reciprocity, international supervision of tariff and exchange rates, outlawing of
quantitative restrictions, freely convertible currencies and the generalization of tariff reductions
to all members of the regime. The trade regime is, to use a term coined by Ruggie ( 1 982) , one
of' embedded liberalism' . In other words, its main features subscribe to liberal trade principles,
but recognition is made of deviations from the standard principles to support key domestic goals.
It is not a laissez-faire system but has many elements of managed trade. 'J;'he four key principles
guiding the regime are:
1 . Non-discrimination. is enshrined in the most favoured nation (MFN) clause. The MFN principle
ensures that any concession granted to one member must be extended to all other members.
Under MFN provisions, all members of the GATT/WTO are treated in a non-discriminatory
manner. A tariff on an import from a GATT/WTO member had to be placed on all other
GATT/WTO members in a similar maimer, with the exception of customs unions or free-trade
areas. This principle is therefore at the centre of the multilateral trading system.
2 . Reciprocity is intended to ensure that when one country lowers its tariffs against the exports
of another country, it will, in turn, be granted equal trade concessions. The principle of reci­
procity that is applied through multilateral bargaining means that, in theory, one country's
concessions are paid for by a third country, which then passes them on to another country
and the process repeats itself.
3. Ifansparen.cy refers to the fact that any discrimination must be clearly visible. The system is
based on the principle that tariffs are the only permissible form of discrimination. NTBs,
such as import quotas, are banned and countries are urged to replace them with tariffs.
 132 DYNAM ICS INTERNATIONAL TRADE 133
.-: :·- --------- -- ------------------- - - ----- -
4. lVIultilateralisrn is a conunitment to the creation of a broadly based trade regime including the around 50 per cent in 1 947 to about 4 per cent in 1 979, and those in the UK decreased from
maximum number of countries conunitted to cooperation through a rule-based system and around 40 per cent to about 4 per cent in the same period (Greenaway and Hine, 1 99 1 ) .
engaging in periodic rounds of tariff-c utting. Industrial countries were willing t o liberalize i n sectors that were expanding b u t reluctant
to do so in those in which they had lost or were losing comparative advantage and felt most
The Conference on Trade and Employment held in Havana, Cuba in 1 948 created the ITO as
under threat. Agricultural protection continued unchecked until the Uruguay Round, where
the institutional framework of the postwar international trading system. However, many business
a start was made on phasing out the protection afforded to farmers in the developed world.
groups in the US opposed the ITO, fearing that it was not sufficiently liberal and offered too
Reform of agricultural trade proved difficult and continued to be a sensitive political issue in
many concessions to countries trying to protect their own industries. Given the preponderance
future trade talks. Developed countries also devised a series of restrictive measures in relation
of the US in the world economy, most govenm1ents delayed ratification until the US Congress
to textiles and clothing. Under the guise of ensuring orderly market behaviour, in 1 97 4 the
gave its assent. In 1 95 1 , President Truman, aware of widespread domestic hostility to the ITO,
GATT sanctioned the Multifibre Arrangement (MFA) to regulate trade in textiles and cloth­
decided not to seek congressional assent, thus consigning the ITO to history.
ing. This was, in effect, a protectionist device limiting particular developing countries' exports
With the failure of the ITO, the GATT became the institutional focus of the world trading
of textiles to developed states. It was not phased out until 2005 as a result of decisions made
system.. The GATT was the result of a tariff-cutting exercise by 23 nations prior to the Havana
during the Uruguay Round negotiations.
conference. Meeting in Geneva in March 1 94 7, the delegates decided on a series of tariff reduc­
Third, whereas trade liberalization was initially li1nited solely to trade in merchandise goods,
tions, and a tem.porary mechanism to oversee these cuts. Instead of withering away as initially
beginning with the Tokyo Round, additional issues were placed on the agenda. The Tokyo
envisaged, the GATT was given a degree of permanence. The GATT provided a code of rules, a
Round negotiations were conducted during the period known as the 'new protectionism', where
dispute settlement mechanism and a forum for trade negotiations. Its main importance lay in its
states prohibited from recourse to tariff barriers through their GATT c01m11itm.ents began to
role as a forum. for trade negotiations. I n eight rounds of multilateral trade negotiations between
impose sig11ificant NTBs. At the conclusion of the Tokyo Round, negotiators agreed six volun­
1 947 and 1 994 (Table 6.3) , it presided over a period of unprecedented growth in world trade.
tary codes to prohibit the use of NTBs, but im.plementation was poor. They also attempted to
Three main features of trade liberalization are visible in the GATT period. First, the GATT
develop a framework to regulate anti-dumping measures. During the Uruguay Round, the
achieved considerable success in reducing tariffs on manufactured goods. Beginning with the
agenda of the world trading system was further expanded to include services, intellectual prop­
Geneva Round in 1 94 7, significant tariff reductions were negotiated in successive multilateral
erty rights (IPR) , investment, envirom11ent, labour standards and domestic (non-trade) policies.
trade rounds on some 45 ,000 products, constituting approximately half of world trade at that
The GATT also provided a normative framework and a dispute settlement mecha11ism.
stage (Williams, 1 994, p. 1 50) . Progress slowed somewhat between this and the Kennedy Round,
Assessment of the GATT's impact as a normative framework is difficult but two issues can be
but substantial tariff reductions were achieved. The new approach used in the Kennedy Round
exa1nined. It is undeniable that the GATT made a major contribution to the development of
yielded average tariff reductions of 36-39 per cent, and despite the unfavourable economic cir­
international econonuc law Gackson, 1 969; Kock, 1 969) . The GATT treaty is a legal document
cumstances, tariff cuts in the Tokyo Round averaged 33-38 per cent.
and it provided a code of rules that set the framework for international co1m11ercial transactions.
Second, the process of trade liberalization under the GATT was uneven.Trade liberalization was
Additionally, govenm1ents used the existence of GATT disciplines as a mechanism to resist
almost solely confined to manufactured products - the most dominant growth sector. In 1 94 7, at
domestic demands for protection. One of the GATT's major failures was its dispute settlement
the first round of GATT negotiations, the average tariff on manufactured goods was around 40 per
mecha11ism. Because the reconunendations of the dispute panel required una11imous consent,
cent. By the end of the Ke1111edy Round, these tariffs had been lowered to an average of 10 per
contracting parties could block the decisions of GATT panels.
cent. The tariffs of the industrial countries were reduced by a further 35 per cent as a result of the
At the end of the Uruguay Round of negotiations, a new trade organization, the WTO, was
Tokyo Round (Winham, 1 986, p. 1 7) . Tariffs on industrial products in the US declined from.
created and officially conunenced on 1 January 1 995. The WTO is the successor to the GATT
and owes its existence to perceived deficiencies of the GATT. Dissatisfaction with the GATT
grew because of the orga11ization's failure to reverse the growth of protectionism, the weakness
Table 6.3 GATT negotiating rounds of its dispute settlement procedures and the uneven nature of its trac;le liberalization process. In
I an effort to reverse protectionism and bolster trade liberalization, the WTO was created as a per­
manent international orga11ization with greater scope than the GATT. The WTO is the legal and
Name Dates Number of countries
institutional foundation of the world trading system. It is a legal agreement specifying the rights
participating
I
Geneva 1947 23 and obligations of its members. The WTO consists of a series of interlocking legal agreements,
1949 13 and membership requires acceptance of these agreements as a single undertaking. On accession
to the WTO, a state must adhere to the following agreements:
Annecy
Torquay 1950-5 1 38
• the agreement establishing the WTO
Geneva 1956 26
Dillon 1960- 6 1 26 • GATT 1 994 and other multilateral trade agreements for goods, including the SPS

Kennedy 1964-67 62 • Agreement, the Agreement on Technical Barriers to Trade and the Agreement on
Tokyo 1973-79 102 • Trade-Related Investment Measures (TRIMs)
Uruguay 1986-94 123 • the General Agreement on Trade in Services (GATS)
134 DYNAM ICS
I NTERNATIONAL TRADE 135
• the Ag ree men t on Tra de -Rel ate d Aspects of I ntellectual Proper ty Rights (TRIPS) disputes , the WTO contr ibutes to the stabili ty and furth er evolution of the world tra ding system ,
• the Understanding on R ules and P rocedures Gover ning the Settlement of Disputes sin ce l iberaliza ti on
will not take place in the absence of eff ective dispute settlement procedu res .
Further more, compared with the GATT, the WTO h as transformed the mana gement of
• th e Tr ade Policy Review Mechanism.
world trade in three cr ucial respects:
The WTO also consists of plur ilateral a greements gover ning c ivil aircraft , goven m1ent procur ­
� 1. It engineered a sh ift from trade l iberali zation b ased on tar iff con cessions (shallow or negative
me nt and da ir y and b ovine products, but the accepta nce of these agreements is not mandator y
integ ration) to discussions of domesti c poli ci es , instituti on al practi ces and re gulat ions (dee p
fo r membership.
. or p osit ive inte g rati on).
While the GATT was essentially a contractual agreement among its memb er states, tJ1e WTO
.
is an international or ganization with a legal personality akin to other inter gover mnental or gamza-_ 2. It constructed a new agenda expanding the scope - wi th the in clusion of ser vi ces , TRIPS
.
uons sue11 as the IMF ,and the World B ank · The sole fo rmal actors 111 the WTO are the member and domestic (non-t rade) p oli cies - and ch anging the ch aracter of negoti ations from a focus
states and the princ ipal dec ision- makin g b ody is the Minister ial Conference , wluch me� ts_ eve�-y on b ar g a imng over produ c ts to nego ti a ti on s ove r polici es th at sha pe the condit i on s of

�o years. To date, eleven Minister ial Conferences have b een held (see B ox 6.4).�he Mimstenal compe titi on.

Conference is empowered to make decisions on any issue covered by the WTO agreements. S111�e
it only meets ever y two years, it has delegated its competence to �he Gene_ral Council.The G en�ral
CounCil Consisting of all WTO memb ers , is the highest decis10n-making body 111 the 111terval
' .
be tween Minister ial Conferences. The General Council also a cts as the Dispute S ett1ement B o_dy
and the Tra de Policy R evie w B ody. The or ganiza tional structure of th e WTO is completed by tlu e
_ �
cou nc ils, each with a functional area of spec ialization - the Council for Trade 111 Goods, the C_ouncil
for Tra de in Ser vices and the Council for Trade-Related Aspects of l nt llectual Proper ty Rights -
� _
a nd by var i ous conu11ittees and a number of working grou ps and working par ties.
3. It initiated a movement tow ards policy har momzati on, for example in the areas of sub sidi es,
tra de-relate d investment me asures and ser vi ces .
The WTO' s extensive powers h ave given i t a much lugher profile th an its predecessor.
Trade liberalizati on since 1947 h as b een ac compa11i ed by a rise in international t rade (see
Table 6.4), which supporters of further liberali za ti on clai m i s a result of the process of removing
restr ict ion s to tra de.They a rgue that th e insti tu ti onal framewo rk c rea tes libera liza ti on and this in
tu rn enhances in c rease d tra de (Finl ay son and Z ach er , 1981). St ru cturali st cr i t ics , on th e o th e r

ha nd, claim tha t trade expansion would h ave taken place without these governing arran gements ,
since th e grow th in tra de ha s pr inc ipally b een a respon se t o st r uc tur a l cha nge in the wo rld
ec onomy (Strange , 1985).

P r ior to a n exanunation of the key underlying i ssues in th e i nter national tra din g system , we
conclu de thi s revie w of cha nging insti tuti onal arrangements with a bri ef di sc ussion of the state
First Singapore, 9 - 13 December 199 6 of th e WTO in t he a fter math of i ts fail ure to c oncl ude th e Doha R ound sati sfa ctor ily. Its most

Second Geneva, Switzerland, 1 8 - 20 May 1 9 98 ambitio us attempt to c onclu de a round of mul tilateral tra de n egoti at ions w as l aun ch e d a t the

fou rth Minister ial Conference in Doha i n 2001, with 259 memb ers partic ipat ing, and w as i11i­
Third Seattle, Washington State, 30 November-3 December 1999
tially sche du l ed to c onc l u de in 2005. Despi te repeated a ttempt s t o reach a g reement , after 14
Fou1·th Doha, Qatar, 9 - 13 November 2001 years of negot iations, the Doha Rou nd was finally ab andoned in December 2015. While the
Fifth Cancun, Mexico, 10- 14 September 2003 failure of the Doha R ound is indicative of an institutionalist stasis at th e centre of the world trad­
Sixth Hong Kong, China, 1 3 - 1 8 December 2005 ing system , it does not signal the imnunent denuse of the organization.The WTO's contr ibu tion
to an or derly and sta bl e world tra ding sy stem cannot b e reduced to its role in fa c il ita ting multi­
Seventh Geneva, Switzerland, 30 November-2 December 2009
la teral tr ade n egotiati ons. As note d ab ove, a maj or depa rture from GATT w as the strength e11ing
Eighth Geneva, Switzerland, 1 5 - 1 7 Decembe1· 201 1 of dis pute se ttlement proc edures in th e WTO. In an increasingly fract ured tra ding sy stem , the

Ninth Bali, I ndonesia, 3- 6 December 2013. WTO's Disput e Settlement Understanding is increa singl y reso rt �d to by its memb ers .
F u rthermore, the WTO' s role i n govenung th e trade sy st em i s exemplified by the c reation of
Tenth Nairobi, Kenya, 1 5 - 19 December 2015
new ag reements. For example, the Trade F acili tati on Ag reement (TFA) a greed at the B ali
Eleventh Buenos Aires, Argentina, 10- 13 December 201 7 Minister i al Co nference in December 2013 entered into fo rce on 22 February 2017. The TFA
will expedite the movement, release and clear ance of goods and is expected to reduce trade costs
globally by an average of over 14 per cent.

In a n attempt to improve t he functimung of the world tra ding system under the WTO, the
Table 6.4 World merch andise trade, 1948- 20 17 (billion US
procedure for settling tra de dispu tes w as considerably streng�hened. The Dispu t � _ s_ ttlement dollar, curren t prices )
Understanding provides the machinery for settling members diff eren ces on then nghts and
�
obl igati on s. I t c o n si sts of a first-st a ge pa nel a dj u dication followe d by an appeals P rocess the
_ �
--@i:Nlf&iiiiiiifilll§:Fllf#MMN+MMM+
-
II
II

59 84 157 57 9 1 ,83 8 3, 6 84 7 ,380

Appellate B ody), and a clear schedule for the process ing of disputes. M oreover, dec1S1 ons fi:om 17, 198
· --
th e disp ute se ttl ement process are b ase d on a negative con sen su s: th at i· s , t11ey can 01uy b e over - 62 85 164 5 94 1 ,883 3,800 7, 696 1 7 , 672
tur ne d by the General C ounc il if all members are in a g ree ment .As a c entre fo r the settlement of Source: WTO (2018b , pp. 122-3)
136 DYNAM I CS INTERNATIONAL TRADE 137

Declaration' (WTO, 2001a, para. 2). The hopes and aspirations enunciated in 2001 were never
Key Issues
fulfilled. A long, tortuous negotiating process ended in failure in 2015. The failure to make sig­
There are numerous trade issues on the contemporary international agenda. However, the future
nificant progress on the talks reflected the inability of developing countries to impose their will
of the liberal trading system. and the role of the WTO as the key institutional node of the trade
and the continued veto power possessed by the EU and the US .in trade negotiations. The three
regime lie at the centre of current discussions. Here, we discuss three broad issues that are relevant
most contentious issues were agriculture; services, intellectual property rights (IPR) and invest-
to the governance of world trade. The first is the place of developing countries in the world trad­
111.ent; and special and differential treatment.
ing system. The second concerns the proliferation of regional trade agreements, and the third
relates to the legitimacy of the trading system..
Agriculture
Agricultural trade liberalization is an issue of central concern to many developing countries since
Developing country interests they remain dependent on the export of agricultural conunodities, and even in those countries
Although the economic structures of developing countries are diverse, a set of interests specific in which agriculture is not the major export sector, agriculture remains a significant employer of
to them have emerged within the world trading system. Central to this development has been labour (see Table 6.5).
the self-identification of developing countries as a group, and the limited political influence they
exert in international trade negotiations. While no single developing country coalition exists in
the context of the WTO, developing countries have identified conunon interests (Narlikar and Table 6.5 G O P composition by sector: agricultu re, 2017 (per cent)
Tussie, 2004) and have at times created formal negotiating groups (see Box 6.5). Issue-based Share of GDP in agriculture
Country
coalitions among developing countries coincided with the adoption of 'integrative' or 'value­
creating' negotiating strategies, which involve 'actions designed to expand rather than split the Somalia 60.2
pie' (Hurrell and Narlikar, 2006, p. 423). Chad 52.3
In the debates on trade liberalization since the creation of the WTO, developing countries
have attempted to define and promote specific sets of interests. In Novem.ber 2001, the first
Guinea-Bissau - - . - - - -·�-�-50.0
- --- - . -

major round of multilateral trade negotiations since the Uruguay Round was launched at the Comoros 47. 7
Doha Ministerial Conference of the WTO. It became known as the 'Development Round' in Central African Republic 43.2
recognition of the irn.portance of development to a majority of the world's countries. As the
Doha Niinisterial Declaration. stated: 'The majority ofWTO members are developing countries.We
Mali 41.8
======:...:::::;i
seek to place their needs and interests at the heart of the Work Progranune adopted in this Niger 41.6
Sudan 39.6
Burundi 39.5
Ethiopia 34.8

I ndividually, many developing cou ntries are too small and have li mited bargai ning powe1· i 11 Kenya 34.5
international trade negotiations. Coal itions freq uently arise 011 a specific issue or emerge at a Solomon Islands 34.3
pa 1·ticular conferen ce. Some major developing cou ntries seek to enha nce their bargaining power
Liberia 34.0
by joining a coalition, and other smaller cou11tries join gmups for defensive pu rposes. Exa mples of
developing cou ntry coa litions include: Burkina Faso 3 1.0

• The Like-Minded Group of developing cou ntries was formed in 1996. It has been active in opposing Rwanda 30.9
prog1·ess on the so-cal led 'new issues', such as TRI PS and GATS, and insists on im plementation Togo 28.9
of the U ruguay Round agreements. Its main members a 1·e African and Asia n cou nti·ies, and there
Malawi 28.6
are more than 52 mem bers.
• The G20 emerged in response to the Cancun agenda in 2003 and was i n itiated by Brazi l and Tajikistan 28.6
I ndia . The G20's core mem bership is influential developing cou ntries, such as Brazi l, China, Uganda 28.2
I ndia, South Africa, Pakista n, Egypt and Nigeria, and spans the various regions of the developing
Mauritania 27.8
wo1·Jd . The focus of the G20 is agricu ltural negotiations.
Vanuatu 27.3
• The G90 was created at the 2003 Cancun Min isterial Conference a 11d brings together some
of the po0t·est developing cou ntries. Its membership is made u p from the Least Developed Nepal 27.0
Countries ( LDC) group, the Africa n , Caribbean and Pacific Group of States, the Small Island 26.1
Benin
Developing States and the African Gmup.
Cambodia 25.3
• The Cotton-4, formed prior to the Cancun Ministe1·ial Conference i n 2003, brings together the
main African cotton produce1·s - Benin, Burkina Faso, Chad and Ma li. Source: CIA (2018)
138 DYNAM I CS
Whereas the industrialized countries have embraced liberalization in manufactured prod­
ucts, they have been reluctant to fully liberalize agricultural trade. Indeed, until the Uruguay
Round, agriculture was kept off the negotiating agenda. Despite the progress made during
the Uruguay Round, agriculture in the industrialized countries continues to enj oy high lev­
els of protection. The agricultural support policies of developed countries have an overall
negative impact on developing countries. This is an area in which the developed world aban­
dons its support of comparative advantage and, for a number of socioeconom.ic and political
reasons, implements discriminatory policies. When protection leads to excess dom. e stic pro­
duction, this results in lower world prices, thus reducing the incomes of producers in the
developing world. Protection, in the form of im.port levies and quotas, rern.oves a large part
of agricultural trade from the world market, increasing the volatility of international prices.
The persistence of impediments to market access in agriculture therefore remains a major
policy concern of many developing countries. The persistence of subsidies on major agricul­
tural exports from. the developed countries, continued domestic support to agriculture and
high tariffs resulting from 'tariffication' (the process whereby NTBs are converted to tariffs)
have conspired to restrict the gains made by developing countries.
Although agriculture was prioritized as a key issue in the Doha Round and WTO mem.bers
were committed to a significant reduction in trade-distorting subsidies and other forms of agri­
cultural protection, the negotiations were characterized by countless disagreements, shifting
deadlines and eventually a failure to reach com.promise. The slow pace of the agricultural nego­
tiations prompted the development of solidarity arn.ong developing countries (Clapp, 2006) . It
also led to an unprecedented move by four West African cotton producers and the reshaping of
the agenda to 111.eet their specific interests (see Box 6.6) .
The slow progress of the agricultural negotiations frustrated many LDCs which were aware that
failure further weakened their fragile trading positions. In June 2003, prior to the WTO Ministerial
Conference in Cancun, fou r West African countries - Benin, Burkina Faso, Chad and Mali (the
Cotton-4) - submitted a paper to the WTO's Trade Negotiations Committee calling for the abolition
of developed country cotton subsidies, and financial compensation to be paid to the four rnuntries
while the subsidies remained. The proposal was submitted to the Cancun conference in September
2003 but no agreement was reached. There were objections by various states to both parts of the
draft document - treating cotton as a separate issue, and the provision of financial compensation.
These disagreements were overshadowed by the disdainful attitude of the US delegation to the
proposal. In the charged atmosphere of Cancun, the cotton initiative became a key symbol of
developing countries' anger and disappointment. In the discussion post-Cancun to get the multilateral
trade negotiations back on track after the 'failure' of two successive Ministerial Conferences, the
cotton initiative was placed on a separate negotiating track. A cotton subcommittee was created i n
November 2004 u nder the framework o f the agricultural negotiations. Along with the rest o f the
Doha Round, negotiations have stalled and no further progress has been made.
It should be noted that while agricultural protection has a negative impact on the developing
world, there are important differences between developing countries that are net exporters of
agricultural goods and those that are net importers. The Doha negotiations exposed serious rifts
between net exporting and net importing developing countries. The issue of agricultural protec­
tion highlights the continued influence of agricultural lobbies in Europe and the US on trade
policy and also shows the common interests shared by some developed and developing countries.
INTERNATIONAL TRADE 139
The Cairns Group
Largely an Australian invention under the Hawke government, the Cairns Group comprises 19
agricultural exporting countries - Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa
Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, Peru, the Philippines, South
Africa, Thailand and U ruguay. Formed in 1986, the Cairns Group has effectively put agriculture
on the multilateral trade agenda after decades of stalemate over the reduction in the protection
received by agricultural products. It was largely as a result of the group's efforts that a framework
for reform in farm products trade was established in the Uruguay Round and agriculture was, for the
first time, subject to trade liberalization rules. These rules are set out in the 1995 WTO Agreement
on Agriculture.
This conunonality of interest has given rise to the Cairns Group (see Box 6.7), an intergovern­
mental pressure group for agricultural reform linking developing and developed countries.
The varying interests of developing countries were also visible in another area - textile pro­
duction. The end of the MFA on 1 January 2005 showed how freer trade can benefit some
developing countries at the cost of others. The MFA's restrictions on the amount of textiles that
each developing country could export to developed states had the effect of distributing textile
production across a large number of developing states. For example, when Taiwan reached its
limit, some production was located in sub-Saharan Africa. Removing these restrictions allowed
businesses to locate their production wherever they wished. The result was that textile produc­
tion pulled out of some areas of the world to gather in others. In particular, there was a shift out
of sub-Saharan Africa back to Asia (Ayoki, 20 17). Protection was reduced in developed states, but
Africa lost manufacturing capacity and increased its own textile imports from Asia. In this case,
Asian and African interests conflicted.
Services. IPR and investment
The expansion of the multilateral trade agenda during the Uruguay Round to include new
issues has remained controversial and has created difficulties for WTO trade governance. It has
been argued that three issues - trade in services, IPR and investment measures - separately and
together limit the policy autonomy of developing country governments (Wade, 2003) . The most
frequently discussed services - tourism, business services and finance - provide greater returns
for the developed world. However, in some cases such as business services in publishing and data
processing, developing countries have been able to build up exportable services. This is particu­
larly the case in India. The concern is that in the overall trade in ser�ices, developing countries
are at a disadvantage. While developing countries were able to safeguard some of their interests
by insisting that the GATS be based on a positive list, that is, countries must list the services to
be liberalized, the impact of liberalization in services on developing countries remains a hotly
debated topic (Wiener, 2005) .
The issue of IPR is also of great importance to developing countries (also see Chapter 13).
Until the Uruguay Round, copyrights, patents and other forms of intellectual property were not
treated as trade or even trade-related issues. They were brought into the Uruguay Round on the
insistence of US TN Cs, who insisted that exports of counterfeit goods, especially from Southeast
Asia, were responsible for large revenue and profit losses (Sell, 2000) . Moreover, pharmaceutical
companies had long complained that their profits and R&D were harmed by the local produc­
tion of their products without payment of a licence, and usually justified under national health
guidelines. The TRIPS Agreement gives greater influence to foreign investors and provides
increased international patent protection to a range of products and processes previously exempt
/{'c _);,L__��-=�==------- - - ----- ----- ---- -
140 DYNAMICS

from patent protection (Hoogvelt, 1 997, p. 1 36) . It requires countries to accept the substance of 1 . provisions aimed at increasing trade opportunity through ma rket access
INTERNATIONAL TRADE 141

existing international conventions on copyright (Berne Convent1011) and p tents (Pans

� 2 . provisions requi ring WTO members to safeguard the interests of developing countries
Convention) . B r inging these agreements under the WTO subjects them to WTO dispute settle­
ment procedures and enforcern.ent 111.e chanisms . The agreement fo rces two kinds of costs on 3. provisions allowing flexibility to developing countries in rules and disciplines governing
middle- and low-income countries: revenue losses due to the increased cost of drugs, and the trade measures
administrative costs of introducing relevant legal frameworks to protect patents.
4. provisions allowing longer transitional periods to developing countries
The likely detrimental impact of the TRIPS Agreement was most clearly visible in the ar� a
of public health, where under the original agreement drug companies holding patents to medi­ 5 . provisions for technical assistance.
cines can dictate the price of essential drugs. D eveloping countries (supported by civil society
Within each of these groups, additional p rovisions are made specifically for the LD Cs. The aim
organizations) campaigned for an amendment to the TRIPS Agreement. In �00 1 , the Doha
of the WTO is to include developing countries as full participants in the system, that is, to move
Ministerial Conference adopted the Declaration on the TRIPS Agreement an.d Public Health, which
to a position where it will b e possible to withdraw any special and differential status. The provi­
recognized that the TRIPS Agreement should be 'interp reted and implemented in a manner
sions noted above with regard to the S&D of developing countries have largely been ineffectual.
supportive ofWTO members' right to p rotect public health and, 111. particular, to p romote access
For example, developed countries are not taking the special needs of developing countries into
to medicines for all' (WTO, 200 1 b) . Then, in 2003,WTO members removed an important obsta­
account in preparing and applying sanitary and phytosanitary measures, technical regulations,
cle to affordable drug treatment by waiving the requirement that the manufacture of drugs standards and conformity assessment procedures. Moreover, the transitional periods do not always
should be to predominantly supply the local market. Under this waiver, medicines can be pro­
give sufficient time to deal with specific shortfalls in capacity that are faced by individual mem­
duced in third countries and imported by poor countries lacking the capacity to manufacture the
b ers or those with precise development needs. Finally, many developing countries emphasize the
medicines themselves. In 2005, WTO members agreed to incorpo rate the 2003 waiver into the
critical and continued need for technical assistance. They call for better coordination of technical
TRIPS Agreement, subj ect to ratification by two-thirds of the membership, which was finally
assistance from all sources, and have asked for increased funding of technical assistance in the core
achieved in January 20 1 7 . The amendment to the TRIPS Agreement is the �rst occ s1011 that
� WTO budget. Taking cases b efore the dispute settlement mechanism usually requires the pay­
WTO rules have been amended. The issue of drug patents and HIV/ AIDS is discussed m greater
ment of large fees for specialist legal advice.
detail in Chapter 1 3 .
The emergence of the BRICS, the increased share of developing countries in world trade and
Some critics are wo rried that the move towards giving foreign investors unfettered access to
the role oflarge developing countries in the Doha negotiations b rought the issue of S&D provi­
o-lobal markets will undermine the sovereignty of host governments . This issue smfaced in the
sions to the fo refront in recent discussions of global trade governance. On one hand, there is a
�egotiations 011 TRIMs (Trade-Related Investment Measures) , which is designed to limit the
demand to limit the application of S&D by restricting countries from self-declaring their status.
ability of governments to set pe1formance requirements fo r FDI . Although an agreement with
This approach has been canvassed recently by the US govenunent (Gonzalez, 20 1 9) , and in
the potential to override national law does not exist, many believe that it is o nly a matter of tune
March 2 0 1 9 , the Trump administration moved to remove p referential access to India and Turkey.
before such an agreement is signed. The OECD's attempt in 1 995 to create a regulatory code for
On the other hand, developing countries continue to insist on the importance of S&D p rovi­
foreign investment (the Multilateral Agreement on Investment) met vociferous oppos�tion from
sions. In Feb ruary 20 1 9, a group of developing countries led by China, India and South Africa
critics in the developed world, and also from groups claiming to speak fo r the developmg world.
tabled a resolution in the WTO General Council titled, 'The Continued Relevance of Special
Opposition from social movement activists was instrumental in the failure by govenu1.1.ents to
and Differential Treatment in Favour of D eveloping countries to Promote D evelopment and
agree on it and the idea was disbanded in 1 998 ( Goodman and Ranald, 2000) .
Ensure Inclusiveness' (WTO, 201 9a) . It has been argued that this binary di':'ision is unhelpful and
should be replaced by a careful balancing of rights and obligations (Low et al. , 20 1 9) .
Special and differential treatment
Another contentious issue relates to the status of developing countries in trade negotiations. Regional trade agreements
Since the 1 960s, developing countries have been concerned with ensuring that their participa­
tion in international trade meets with their development needs. The demand fo r special and Since the 1 990s there has been an acceleration in the creation of regional trade agreement
differential treatment (S&D) was based on the claim that the demands of development are (RTAs) . There are currently 29 1 RTAs in force, with most of these created since the establish­
incompatible with the free operation of market forces. Despite arguments that S&D rests on ment of the WTO. Between 1 948 and 1 995, the GATT received notification of 1 24 RTAs, but
_ the WTO received notification of 467 RTAs between January 1 995 and January 20 1 9 (WTO,
weak theoretical and empirical foundations (Ornelas, 20 1 6) , S&D has become an mtegral feature
of the world trade system. The demand for S&D was first formally accepted in 1 965 with the 20 1 9b) . Box 6 . 8 provides an example of the evolution of RTAs as part of the trade strategy of a
addition of a new chapter to the GATT: Part IV 'Trade and D evelopment' that gave legal sanc­ middle power with a strong conmutment to multilateral trade. Accele ration in the creation of
tion to the principle of S&D and provided developing countries with a specific focus from RTAs accompanied the slow pace of multilateral negotiations. However, recent US policy has
which to mount further campaigns for reform. While the Tokyo Round extended S &D provi­ stynued two major RTA developments. First, President Trump withdrew from the Trans-Pacific
sions, the creation of the WTO has seen a move away from treating developing countries as a Partnership (TPP) (see Box 6.9), and halted negotiations on the Transatlantic Trade and
special case. Within the WTO, increased emphasis is given to the trade needs of the LDCs, and Investment Partnership (TTIP) between the US and the EU. However, caution should be applied
developing countries, while given some concessions, are expected to conform to the general when generalizing from US policy. First, the approach of the Trump adnunistration is not
rules. S&D under the WTO can be classified into five main groups: anti-RTAs but one insistent that RTAs serve US interests. Thus, NAFTA was not abandoned but
renegotiations resulted in the United States-Mexico-Canada Ag reement. Second, the EU (a key
,___..._:ffil
· 142
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DYNAM ICS --
A Australia and its regional trade agreements existing free trade
V agreements (FTAs):
• Australia- New Zea land Closer Economic Relations Trade Agreement (1 January 1 983)
• Singapore-Austra lia FTA (28 July 2003)
• Australia-U nited States FTA (1 January 2005)
• Thailand -Austra lia FTA (1 Janua ry 2005)
• Australia -Chile FTA (6 March 2009)
• ASEAN -Australia- New Zealand FTA (1 January 2010; first eight signatories)
• Ma laysia-Austra l ia (1 January 2013)
• Korea-Austra lia ( 1 2 December 2014)
• Japan -Austra lia ( 1 5 January 20 1 5)
• China -Austra lia (20 December 2015)
• Comprehensive and Progressive Agreement for Tra ns-Pacific Partnership (30 December 2018).
FTAs concluded but not yet in force:
• Australia- Hong Kong Free Trade Agreement (26 March 2019)
• Indonesia -Austra lia Comprehensive Economic Pa rtnership Agreement (31 August 2018)
• Peru-Australia Free Trade Agreement (12 February 2018)
• Pacific Agreement on Closer Economic Relations (PACER) Plus (14 J une 2017).
FTAs u nder negotiation:
• Australia- Europea n Union Free Trade Agreement
• Australia-Gulf Cooperation Council (GCC) Free Trade Agreement
• Austra li a - I ndia Comprehensive Economic Cooperation Agreement
• Pacific Alliance Free Trade Agreement
• Regiona l Comprehensive Economic Partnership
• Trade in Services Agreement.
The first round of TPP negotiations was held in Melbou rne in March 2010. The twelve negotiating
states - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the
US and Vietnam - together accounted for 1 1 . 2 per cent of world popu lation, 36.2 per cent of world
GDP and 2 5 . 5 per cent of world trade (Department of Foreign Affairs and Trade, 2015). Envisaged
as a comprehensive trade agreement, the TPP aimed to address issues such as trade in goods and
services, _and new issues such as investment, competition and state-owned enterprises, regulatory
coherence and transparency.
The political and economic elites supporting the TPP argued that it was vital in securing future
economic prosperity. As the delegates to the November 2011 meeting of the TPP stated :
We are confident that this agreement will be a model for ambition for other free trade agreements in
the future, forging close linkages among our economies, enhancing our competitiveness, benelitting
our consumers and supporting the creation and retention of jobs, higher living standards, and the
reduction of poverty in our countries. (TPP, 201 1)
However, the TPP has been opposed by va rious groups including environmentalists, labou r unions
and health professionals. The scope of the treaty and the secrecy of the negotiations d rew extensive
criticism from civic groups and elected officials in various legislatures. An issue of particular concern
INTERNATIONAL TRADE 143
was possible investor protection provisions, which wou ld al low companies to sue states in the event
that pu blic pol icies hinder their pursuit of profits. The TPP negotiations were successfully concl uded
on 5 October 2015.
The TPP was effectively ended when the U S withdrew from the agreement i n January 2017 as
President Trump asserted his economic nationa list 'America First' pol icy. The remaining 11 countries
restarted negotiations and signed the Com prehensive and Progressive Partnershi p for Trans-Pacific
Partnership in March 2018, which came into effect on 30 December 2018.
global trade actor) is currently negotiating or in the process of implementing RTAs with coun­
tries in Asia, North Am. e rica, South America and Oceania (European Conmiission, 201 9) .
Regional economic organizations have multiple objectives, o f which the promotion of trade
liberalization is frequently only one aim. Other aims can include investment liberalization, the
managing of economic conflict, domestic economic restructuring and political integration.
Current RTA negotiations often involve multiple parties and/or parties accounting for major
shares of world trade; they aim at high-standard integration through WTO-plus or WTO-extra
provisions on behind-the-border regulatory n1easures, such as technical regulations, standards,
conformity assessment systems, sanitary and phytosanitary regulations, services, investment, intel­
lectual property, state aid and state-owned enterprises, public procurement, competition policy,
environment, or labour market regulations.
Nevertheless, whether trade liberalization is a central objective or the means towards an end,
the development of regionalism is a crucial feature of the trading system. Central to discussions
of RTAs is their likely impact (positive or negative) on global welfare. Since members of RTAs
are also members of the WTO, national goverm11ents are implicitly indicating compatibility
between the pursuit of regionalism and multilateralism.
Analysts tend to place the development of regionalism into two phases. I t is widely agreed
that the creation of the European Economic C01m11muty (EEC) in 1 957 i1utiated the first phase.
The second period is dated from the nud-1 990s. The impact of the two phases of regionalism on
world trade is different. In the first phase, regionalism was relatively inward. In the developing
world, the aim of regional econonuc arrangements was to stimulate industrialization, which
meant that such organizations were more concerned with trade diversion than trade creation.
Trade diversion refers to the process where low-cost suppliers from outside the muon are replaced
by lugh-cost suppliers witlun the regional grouping.Trade creation refers tci the situation where,
as a result of dismantling barriers within the region, trade is stimulated. In Europe, the scene of
the two most successful early attempts at regional integration (the European Free Trade
Association and the EEC) , regionalism was concerned with dismantlii1g barriers among the par­
ticipants. In the second phase, many of the new associations have adopted a policy of open
regionalism, making the reductions to trade more compatible with multilateral commitments.
Although regionalism can be seen in most parts of the world, specific regional agreements vary
greatly in their goals and tenns.Tlus has led to some debate about the internal nature of regions and
the relationship between regions. Internally, political struggles have been waged over the degree to
wluch specific regions should have strong or weak institutions and the scope of policy-making that
should be considered at the regional level. These struggles have influenced the different nature of
the regions. For example, the EU has some supranational institutions that oversee c01m11011 rules. It
also has provisions for regional development funding and labour rights. Most of its members have
gone even further and adopted a single currency. In contrast, the North American Free Trade
Agreement (NAFTA) tends to enforce existing national legislation, has no development funding
and very weak provisions in respect oflabour and enviromnental standards.Whereas in Europe there
is discussion about eventual political muon, tlus subject is of little interest in North America. Moving
144 DYNAM ICS
to the Asia-Pacific area, we encounter an even looser regional organization -Asia-Pacific Economic
Cooperation (APEC) . APEC is n1ore of a coordinating body between countries on the Pacific Rim
than an attem.pt to build strong regional ties with robust institutions. Asian states' fears that a more
developed institution would allow the US to influence their don,estic economies or political
regimes have led to a minimalist structure and trade liberalization agenda.
Some economists have raised fears that increasing regionalization will undermine the multi­
lateral trading system (Baldwin and Thornton, 2008) . It is argued that these regional agreements
are inherently inefficient and discriminatory. RTAs will erode the MFN principle, increase bar­
riers to products from other regions and divert the natural flow of free trade. Such actions could
cause economic dam.age and undermine political support for a multilateral system. For example,
Europeans and Americans disagree about how much risk should be accepted in the production
of food. This has led to conflicts at the WTO over the EU banning the imports of products such
as cattle that the Americans have inj ected with growth hormones. Other observers have argued
that RTAs can be compatible with the multilateral trading system (Griswold, 2003) .
The issue is sometimes phrased as a debate b etween those who see regions as building blocks
for global free trade and those who see them as stumbling blocks that create incompatible areas
of regional economies.
A final issue is the fate of those areas of the world that are left out of the prominent regional
trading areas. Regional integration is proceeding with some speed in Europe, North America
and East Asia through the activity of govenunents and firms . This excludes large areas of the
world such as Africa, Latin America and South Asia. Developing countries with limited capacity
may run the risk of marginalization and damage to their competitiveness, particularly if they do
not substantially participate in world trade or are unable to conform to the higher standards
embedded in RTAs. There have been several responses. In Latin America, Chile has lobbied for
admission to NAFTA. In contrast, Brazil has put its energy into building MERCOSUR, the
conunon market of several South American countries. Sub-Saharan Africa and South Asia have
a series of regional agreements, but these are underdeveloped because they lack a powe1ful motor
economy such as Germany, the US or Japan. Their efforts at successful regional integration face
large obstacles.
Trade and globalization
In this chapter we have discussed the unsettled debate between proponents of liberal trade and
their opponents . As the handmaiden of globalization, trade has become implicated in continuing
debates concerning the benefits and costs of economic globalization. Two aspects of this political
contestation are significant for the present and future of the international trading system:
legitimacy and populism.
Legitimacy
On one hand, as trade agreements at the multilateral and regional level have proliferated and
influ enced domestic political economies, increasing concern has been voiced by various seg­
ments of civil society in many states (Williams, 2005a) . A wide range of issues has attracted atten­
tion. The detrimental effects of these agreements on social policies, environmental degradation
and labour standards (Wallach and Woodall, 2004) have garnered attention, and a persistent
critique has been mounted against the democratic credentials of global and regional trade orga­
nizations. The central claim by civil society activists is that regional and global institutions are insu­
lated from democratic control.They contend that business and political elites have considerable input
into the structure of such agreements, but citizens find it difficult to hold their govenunents
accountable for the decision-making authority transferred to international institutions. It should
I NTERNATIONAL TRADE 145
be noted, however, that firms are also formally excluded from the WTO. The influence of the
corporate sector comes from its influence at the national level (and inclusion in national delega­
tions) rather than directly at the multilateral level. Nevertheless, the democratic credentials of the
WTO and RTAs have been a subj ect of considerable debate. It has become widely accepted that
democracy is a universal norm and in the context of a debate on democratization, a focus has
arisen concerning the representative nature of multilateral trade agreements.
This issue has been raised most vociferously in relation to the WTO. The debate on the WTO
has focused on issues related to transparency, accountability and participation (Williams, 1 999,
pp. 158-60) . Essential features of this debate are smmnarized in Box 6. 1 0 . The WTO has been
responsive to criticism but this has not silenced its critics. In efforts to bolster its legitimacy, the WTO
has derestricted documents, held consultations with NGOs and accepted submissions from outside
parties (known as 'amicus briefs') during disputes. Nevertheless, critics maintain that the WTO is
undemocratic, claiming that decisions are frequently made in secret and the visible part of proceed­
ings is a mere masquerade with little relation to the real exercise ofpower that takes place away from
the public gaze (Kwa, 2003) . Moreover, critics argue that access to information on which decisions
are made should be more readily available. In response, supporters of the WTO point out that the
Box
6.10 ; Democracy and th e WTO
Is the WTO an undemocratic organization 7 The sca le and ferocity of protests against the international
trading regime i n genera l and the WTO in particular suggest that the organization is undemocratic
and therefore illegitimate. What a re we to make of such claims 7 First, we can observe that no
consensus exists on the definition, mea ning or practice of democracy. It can be argued, however,
that the WTO (with its 1 5 7 members and 27 observer governments) is one of the most democratic
international orga nizations, because:
1 . Its large and d iverse membership represents most of the trading nations in the world and a variety
of economic and political systems.
2 . The consensus method of decision-ma king in the WTO gives each country a voice, and goes
some way towa rds providing small, poorer countries with some sou rce of influence.
3. The WTO is relatively transparent in terms of making access to its documents easy to obtain.
Insofa r as negotiations are conducted in secret, it should be reca lled that trade negotiations do
involve complex and often controversial trade-offs.
Critics of the WTO reject these poi nts and argue that the organization fai l s to provide sufficient
access for civil society groups i n its deliberations. I ncreased participation of social movement
representatives will, it is claimed, provide high-quality information, ba lanced input into policy­
making, public education and increased public support for the organization. These steps are needed
to counter the a l leged infl uence of transnational capital.
At the centre of the debate, therefore, is the intergovernmental nature of the WTO. But the
sol ution is not a simple one. On the one hand, if we accept the intergovernmental character of the
WTO, the representative nature of national governments can be questioned. How legitimate are the
agreements entered into by states that are themselves authoritarian7 Another issue relates to the size
of popu lation. Is a system that gives China and Norway the same formal representation democratic,
given the vast differences in population? On the other hand, if we agree that an intergovernmental
organization fails to capture the range of stakeholders affected by developments in the global trade
regime, it does not follow that increased representation of NGOs necessarily makes the WTO more
democratic, since it cannot be assumed that NGOs are more representative than national governments.
Indeed, developing countries are hostile to increased representation of (largely Northern) NGOs from
social movements because they see them as representing narrow privileged interests.
146 DYNAM I CS
organization is an intergoverm11ental forum in which decisions are based on consensus and subject
to ratification by national parliaments. In this sense, the organization is £Lilly representative of its
membership. A report by One World Trust, an independent British NGO, on the accountability
practices of five intergovermnental organizations, six TNCs and seven NGOs investigated the deci­
sion-making practices of the WTO. Although the report placed the WTO second in its category, it
argued that 'the reality is that some members lack the capacity to engage 111.eaningfLtlly in decision­
making' (Kovach et al., 2003, p. 14). In respect of access to information, the report noted that
'Information on the WTO's trade activities is excellent' (Kovach et al., 2003, p. 15).
Populism
Populist politicians and parties have mounted a different cnt1que of the global trade system
stressing anti-elitism and anti-globalization. Competing explanations of the populist project cite
rising economic insecurities or cultural backlash (Norris and Inglehart, 2019). Populist politi­
cians blame globalization in general, and trade liberalization specifically, for outsourcing jobs,
curtailing sovereignty and contributing to rising inequalities. Populist rhetoric also tends to
blame economic problems on foreigners trading unfairly and immigrants undercutting wages.
Anti-elitism and anti-globalization sentiments were significant in the vote by the UK electorate
to leave the EU, and the election of President Donald Trump. With his 'America First' rhetoric,
Trump tapped into protectionist sentiments in the US electorate.Once elected, Trump imposed
a series of tariffs on allies and rivals aimed at reducing the US trade deficit (see Box 6.11).
!.;xl! 'America First' and rising trade tensions
On the campaign trail in 2016, Donald Tru mp promised to 'Make America Great Again' by
implementing 'America First' policies. His nationalist and protectionist policies have targeted a l l ies
a n d enemies alike. To date, the Trum p administration has adopted policies i n aggressive support of a
nationali st trade agenda. These incl uded withdrawal from the TPP, the renegotiation of NAFTA and
the implementation of tariffs on various products. I n January 2018, tariffs were imposed on solar
panels and washing machines and in March 2018, tariffs were imposed on steel and aluminium. A
central plank of the 'America First' policy is d irected at US-China trade. US-Ch ina trade relations
have deteriorated (with tit-for-tat retal iatory tariffs) and many analysts fear a trade war will ensue,
with costly consequences for China and the US. There is a lso concern that US policies will more
broadly undermine the liberal i nternational order because it has a lso placed tariffs on a l l ies such as
the EU, Mexico and Canada.
It is noteworthy that in the US, these policies do not command majority support. A 2018
survey cond1{cted by the Chicago Council for Global Affairs reported that:
82 per cent of respondents agreed that trade was good for the US economy; 85 per cent
thought that trade was beneficial for US consumers; and 67 per cent agreed that trade was
good for the US economy. (Smelz and Kafura, 2018)
Survey data from the Pew Research Center supports these findings but paints a more cautious pic­
ture: while 74 per cent think that trade and business between the US and other nations is positive
for the US, only 36 per cent think that trade creates jobs (Stokes, 2018).These findings suggest that
the issue of trade policy is contentious, with general support for trade existing alongside concern
about its employment effects. Regions that have suffered economic decline, especially deindustrial­
izing manufacturing districts, can be particularly receptive to calls to restrict trade.
I N TE RNATIONAL T RADE 147
---------------------- --U '/�1
Conclusion
Experience with tariff negotiations has led to the observation that most countries favour trade
liberalization in principle but are reluctant to undertake unilateral reduction of trade barriers
because it would open up their markets, leaving them vulnerable to international firms.
Protectionism therefore remains a prominent issue in the world economy. Protectionism is an
attractive policy for domestic markets, and it is here that pressing demands originate.The demands
for protection reflect structural changes bound up with the growth of transnational capitalism. It
can also be seen as part of a process of structural change in the global economy, which may
reinforce the strength of social forces favourable to the maintenance of open trade.The demand
for protection comes from rational actors in the economic process that are concerned with their
nations' or groups' interests, which would suffer from free trade. The most obvious reason why
protectionism remains a central feature of the world economy is that all economies need some
degree of protectionism in order to develop in ways that they value.
One of the major changes in the international trading system since the end of the Second
World War has been the expansion of the trade agenda beyond a concern with market access and
market expansion to provide coverage of issues such as intellectual property rights, govermnent
procurement, investment protection and labour and enviromnental regulations. This expanded
agenda has brought increased scrutiny to trade policies.
In this chapter we have examined some of the key controversies attendant on the globaliza­
tion of trade. In Chapter 7 we turn our attention to transnational production, an equally contro­
versial issue in the global political economy.
Further Reading
For a spirited defence of trade liberalization, see Anne Krueger (2004) 'Wilful Ignorance: The Sti-uggle
to Convince the Free Trade Skeptics', World Trade Review, 3(3): 483 -93. For a wide-ranging text that
examines the legal, political and economic aspects of the WTO, see Amrita Narlikar, Martin Daunton
and Robert Stern (eds) The Oxford Handbook on the World Trade Organizabon (2012). Lisa Martin (ed.)
The Oxford Handbook of the Polibcal Economy of lnternabonal Trade (201 5) provides a comprehensive
introduction to key aspects of contemporary trade politics. A succinct i ntroduction to the im portance
of regional trade can be found in David Lynch, Trade and G/obalizabon: An lntroducbon to Regional T,·ade
Agreements (2010).