THE ARGUMENT FOR

LESS THAN FREE TRADE

Trade policy is politically Contentious because it has

important domestic distributional consequences.
Therefore free trade is an economist’s fantasy
John Maynard Keynes and Harry Dexter White tried
to build a system to combat the politicization of
trade policies
History showed that domestic needs ultimately
emerge victorious therefore it was better to accept
this and build the safety valves into the system than
to ignore it and risk total collapse
The Bretton Woods Model
Agreement emerged from three weeks of talks between
44 nations in July 1994
Creation of two new international organizations: The
International Monetary Fund and The World Bank
Governed world trade for 3 decades
Keynes and White tried to further US’ and Britain’s
political motives
The policy was focused on Allowing enough international
discipline and progress towards trade liberalisation to
ensure vibrant commerce but give plenty of space for
governments to respond to needs at home.
Multilateralism
The most notable American contribution to the
international economic system was multilateralism
which was rule setting through international
organisations based on the cornerstone principle of
non discrimination.
The reason behind this was FDR’s desire to counter
Domestic isolationists and to target great Britain’s
preferential arrangements with colonies that
hampered American commercial expansion
The international institutions through which
enforcement would take place were decided to be the
IMF the World Bank and the General Agreement on
Tariffs and Trade.
Although America had influence on these institutions
black and true autonomy it still gave smaller and
poorer nations a voice and protected their interests.
 The ITO or GATT

General
Originally meant to be the international trade organisation
the purpose of which was to be agreements on

Agreements
commodity price stabilisation international antitrust and
fair labour standards was reduced to GATT.

on De facto multilateral form

Tariffs
Even though the GATT was not constituted
formally it was managed by a small

and
secretary at Geneva allowing it to become
The main forum overseeing global trade

Trade and liberalisation

The Success
An effective start
Eight successive rounds of
negotiations manage to eliminate
substantial part of import restrictions
and reduce tariffs.
Volume of trade
Grew at an average
annual rate of almost 7
percent between 1948
and 1990
Most Favored Nations
The most favoured nation principle
ensured that all signatories benefited
from this relaxation in restrictions
regardless of their activity in negotiations
Achieving its purpose
GATT purpose was to achieve the
maximum amount of trade compatible
with different nations doing their own
thing in that respect the institution
proved spectacularly successful
 Disadvantages
Many areas GATT barely touched
Rules Contained Loopholes
Agriculture was kept out of negotiations and The loopholes were wide enough for an
remained riddled with tariff and non tariff barriers elephant to pass. Any business with a good
most services escape liberalisation as well even law firm on its payroll could buy itself
manufacturing sectors that began to face protection through GATT's clauses. the AD
significant comparative threat received protection arrangement in particular was an
rather than meeting their fate abomination.

Developing Countries were Free Weak Enforceability

Developing nations themselves were free to
do as they pleased with their trade policies
they were not required to offer tariff
concessions even while they benefited from
others’ tariff reductions.
To get approval of members and change the
offending policy required a unanimous
decision which also included the
government that had been found in violation.
THE RESULT
Advanced nations built customised versions of capitalism around
distinct approaches. In continental Europe there were three
different types of capitalism the German model of social market
economy the Scandinavian welfare state and the French system
based on indicative planning and extensive regulations. The
United States stood as the leading exemplar of the liberal market
economy.
It was much the same in developing world where national
efforts were directed at fostering industrialisation and economic
growth this allowed them to reduce their dependence on natural
resources and commodities thus being able to embark on high
growth on the back of production of manufactures
 The WTO Regime
The creation of WTO in 1995 marks the pursuit of a new
kind of globalization that reversed hyperglobaliztion.

From 1980s on, globalization became an imperative

requiring all countries to pursue a common strategy of low
corporate taxation
From 1980s on, globalization became an imperative
requiring all countries to pursue a common strategy of low
corporate taxation and deregulation.
Trade policy elites and technocrats ascribed postwar prosperity to
multilateral trade liberalization. MNCs demanded more extensive
global roles and Developing nations sought to become export
platforms
The Ideological
Transformation
The 1980s were the decade of the Reagan-Thatcher revolutions. Free
market economics was in ascendancy. There was excessive optimism on
what markets could achieve on their own. This vision saw any obstacle
to free trade as an abomination - it had to be removed.
Agriculture, which had eluded trade negotiations
in the past was now brought under the liberalizing
The WTO envisaged both a ramping
fold.
up of ambitions with respect to
Extent of liberalization varied across countries and
globalization and
sectors such as banking & telecoms.
a rebalancing of state’s domestic and
Quota regime of the multi fiber agreement was to be
international responsibilities
phased out. As initial liberalization remained limited,
an important threshold had been crossed
There were new rules on patents and copyrights requiring developing
countries to bring their law into conformity with the rich countries.

Domestic health and safety regulations became subject to WTO

scrutiny if they were not harmonized internationally

Tighter restrictions were put in place on the use of government subsidies and
there were put in place on the government rules requiring firms to use local
content or limit their imports in relation to their exports.

For the first time developing nations, had to comply with rules that tightly
circumscribed certain important areas of industrial policy
A NEW SETTLEMENT SYSTEM
This was a signal achievement of the Uruguay Round - a new appellate court
gave recourse to countries on the losing side of a panel decision

The appellate body’s decision was final unless it was reversed collectively by
every single member of the organization.

Evading the trade regime’s judicial was possible under GATT, now it became
virtually impossible.

But the significance of the new dispute settlement system cannot be

underestimated . It takes multi-lateralism to a new level.
A LOOK AT SOME WTO CASES
1. THE CASE OF HORMONE TREATED BEEF
One of the most contested cases which illustrates the
ratcheting up of international discipline in trade. The 2. U.S Fuel Emission
European Union directive which went into effect in Standards
1989 following years of intense pressure from 3. Japan’s Differential
consumer groups effectively shut out US beef exports
Taxation for Homegrown
to Europe. The US had sought support from
international institutions to block the European move
Liquour
but after reaching many organisations even the GATT 4. Automotive Industry
before it was WTO and the WHO it turned to WTO Promotion Programs in
whose appellate body ruled in 1998 that prohibition of India and China
hormone treated beef violated international trade 5.Patent Rules for
rules.
Pharmaceuticals in India
 WTO Backlash and
Inclusion of
Agriculture
These rulings have raised a dirty word for Developing Countries felt cheated by
WTO in many circles. Is it really as the Uruguay Round. US locked horns with
critics charge? The reality is a bit of both. EU. Havoc created in Seattle at the
The rulings are not as crude as they ‘Tear Gas Ministerial’ .
suggest but the absence of a clear and A second attempt in Doha successful
bright line between domestic in. opening talks on agriculture which
prerogatives and external obligations was a pyrrhic victory. Agriculture
creates substantial friction. liberalisation a mixed blessing .
TRADE AND WAGES
IN THE REAL
WORLD
Introduction
Economists are not typically known for changing
their minds, but exceptions like Keynes and
Krugman shed light on the complexity of
economic theories.

Initially downplaying globalization's role, he later

expressed guilt over neglecting its adverse
effects, especially concerning income
distribution.

Larry Summers, a staunch free trade advocate,

voiced concerns about globalization's adverse
effects on working people.

He criticized the allegiance of "stateless elites" to

global economic success at the expense of
national interests, highlighting the need for
policies to protect workers.
The Changing Landscape of Globalization
Krugman identified two significant changes since the mid-1990s amplifying trade's
role in widening inequality:

01 02

Lower wages in
Doubling of U.S. developing
imports from countries, notably
developing nations. China, intensifying
competitive
pressures.

China's emergence as a major player in global trade significantly impacted the

dynamics of wage competition.
 The Human Cost of Globalization

An analysis of specific occupations, like shoe machine operators,

reveals substantial wage reductions due to increased import
competition.

The human toll of globalization underscores the need for

comprehensive policies to address income disparities and job
displacement.
The Next Industrial Revolution
Alan Blinder's concept of the "next Industrial Revolution"
underscores the expanding scope of international
competition, especially in service sectors.
The magnitude of potential job displacement poses
challenges for workers and policymakers alike.
While free trade proponents advocate for compensatory
measures like social safety nets, skepticism remains about
the efficacy of such policies.
The lack of robust strategies to manage globalization's
disruptions heightens concerns about its social costs
outweighing economic gains.
 Conclusion
Globalization's impact on income
inequality is a multifaceted issue that
demands nuanced understanding and
proactive policy responses.

Economists' evolving perspectives

underscore the need for
comprehensive strategies to mitigate
the adverse effects of globalization on
workers and society as a whole.
Thank you!