World Trade Vs. World War
Is the WTO really to blame for the economic hardship of developing nations?
Many people around the world are up in arms about the WTO. They view it as a tool to promote globalization — and to impose economic hardship on many nations. In a historic context, however, the WTO is a peacekeeping tool. Peter D. Sutherland, a former Director General of the WTO and now Chairman of BP, explains.
When Cordell Hull — later to become U.S. Secretary of State — told Woodrow Wilson “If goods do not pass frontiers, armies will”, he had thousands of years of history on his side.
Mr. Hull went on, in the 1930s, to design the U.S. trade laws that helped recovery from the Great Depression — and ultimately became the foundation of the General Agreement on Tariffs and Trade (GATT).
The GATT and, now, the WTO have largely eliminated commercial ambition as a cause of war. Governments have neither the need nor the opportunity to raise armies and navies solely to secure access to land, raw materials and labor.
Of course, Friendship, Commerce and Navigation Treaties existed for hundreds of years. But most were born precisely from military adventurism — and empire-building for commercial gain and influence. For centuries, armed might determined or defended trade advantage.
Now businesspeople conquer markets, not navies. That they have the freedom and opportunity to do so is the essential achievement of the GATT and the WTO.
Science has helped, of course. Trade is also a reflection of remarkable developments in technology, transport and communications that make possible the increasingly open global economy. Modern financial systems are also fundamental building blocks.
But it is the multilateral trading system that provides the rules and commitments to support open competitive markets. That is the essential bulwark against commercial confrontation pursued through military means.
Therefore, to suggest that multilateralism in trade might be threatened is not a small matter — not in terms of our collective security, nor from the perspective of economic welfare.
In 1950, two years after the GATT was established, world exports were worth around $400 billion a year (in constant prices, and 1990 dollars). Now, exports of goods and services approach $8 trillion a year.
It is not merely fortuitous that in the same time frame, average customs duties in the industrialized countries have fallen from nearly 40% to less than 5%. Nor is it that, since 1995, we have had a multilateral framework to promote liberalization of trade in services.
And what about the jobs and livelihoods at stake? These are probably incalculable with any accuracy — certainly billions. It may be easier to estimate which are not.
I suspect I am not alone in being disturbed by the carelessness with which the system's critics seek to undermine it. It is not difficult to find faults with the WTO. But what it represents is too precious to abuse.
There simply is no credible alternative model of global governance in trade out there.
If the system's detractors believe a return to the laws of the jungle is an optimum response for those nations and interests they claim to represent, then they are sadly deluded.
Here is how the argument is typically presented. The WTO helped drive globalization. Globalization is bad. Hence, the WTO is bad. That is one popular mindset. Another equates the WTO with trade, trade with corporations — and corporations with exploitation.
Again, the only response is to destroy the WTO. This is mindless nonsense. And it is a great pity that otherwise responsible political leaders have not been much firmer in forcefully and publicly rejecting such notions.
It is certainly the case that one driver of globalisation is the rule-based trading system. It is also true that the WTO provides both open markets and predictability on the basis of which corporations can more easily make investment decisions.
But is what follows bad? Trade does appear to generate national wealth. And despite our concerns about its distribution, wealth tends to be good.
Generally speaking, we live in a world with more democracy than ever, longer life expectancies, better access to food and sanitation, more and improved education, wider access to the arts and different cultures, the ability to travel and communicate cheaply — and access to remarkable medicines and advanced healthcare.
There is no shortage of evidence to back up such assertions. And I am not just talking about the minority of the world's population that lives in industrial countries.
The advances of recent decades have been broad and deep, even if there are still too many desperate exceptions. Crucially, the past two decades have seen perhaps the biggest decline in poverty in history.
The proportion of the world's fast-rising population living on less than the UN's benchmark of $1 a day has fallen from 37% in 1970 and 29% in 1980 to 22% now.
And what of those corporations? Are they simply exploitative?
In fact, the evidence demonstrates that most foreign companies investing in developing nations behave responsibly — usually more so than their local competitors.
They tend to be better employers. They tend to import modern production processes that add efficiency and safety to the old ways. They pay more attention to the environment.
They often invest strongly in local communities. Their governance standards are usually high. And they tend to stick around, despite troubled times. They are seldom fly-by-night operators.
In my view, we need to get back to what the WTO is for. While it will serve development, it is not primarily a development institution. Nor is it a redistributive mechanism to rebalance artificially the economic conditions of its members.
It is simply a means of pushing towards more open markets and keeping open markets open and competitive. That simple purpose is achieved by restraining governments from pursuing their worst instincts. That is the job of the WTO rules.
Where politicians would prefer to respond to narrow, vested interests, governments are required by the WTO to base their decisions on much wider interests. Those rights are principally the negotiated rights of all other WTO members — but also those of domestic consumers, taxpayers and other industries.
That is the Faustian bargain if you like. But it is a bargain that, on the whole, has worked to everyone's benefit. It has its own checks and balances — including, of course, the dispute settlement procedure.
Above all, it is a bargain that gives the most powerful players reason to play by multilateral rules — and to restrict their room for executive and legislative action in the domestic arena in the trade field.
For the most part, with a few slips here and there, those rules do exactly that.
That is why I firmly believe that unilateralism, bilateralism, regionalism and most of the other "isms" may all have their places. But they offer no durable, adequate or wise alternatives to ambitious global decision-making. Multilateralism is the only approach that offers that.
This is an adaptation of Mr. Sutherland's Tacitus lecture given on April 15, 2003 at the Guildhall in London. For the full text of Mr. Sutherland’s speech, click here.