laissez-intérêt: From GATT to Bali

There are two famous logics regarding politics and economics- “All politics is local” and “All economics is international”. The strain between two logics has been persistent for years. Liberal economists forcefully argue that free trade among nations leads to positive sum (win-win) for all countries when based on the principle of comparative advantage, a theory formulated by David Ricardo in 1817. But can every country enjoy this kind of ‘outstanding’ situation? Opening up the market of a poor country along with a big economy cannot come up with equal turn out. The child industries of poor countries can be wiped out with the influx of cheap products from import, for example, the ‘policy of dumping’ can easily hasten this. Free market economy nipped the child industries in their buds which results in massive unemployment and ends with political backlash at decisive stage. Therefore, developments that are continuously taking place every day from global to local levels make us confused about which logic in fact, dominates at the end of the day. This article will try to explore the answer in a nutshell, with the given recent international developments regarding regulations of international trade by WTO and its last ministerial meeting held in Bali, Indonesia. 

Though GATT was established to ensure triumphal march of free market economy, later the term was created laissez-faire but could not get success as much as it was anticipated. Patrick Cronin, professor at international studies, AGSIM has very insightful comments, “Standing in a stark contrast to the liberal logic of trade is that international economic transactions take place in a world of nation state. With no supranational authority to dictate trade rules, much less enforce them, state trade policies are driven primarily by domestic concerns.” But still nation states based international system hastened a situation of creating a supranational body like General Agreement on Tariffs and Trade (GATT) in 1947 with a hope that it would actualize the dream of David Ricardo and ‘perpetual (economic) peace’. ‘GATT was created to facilitate a movement toward global free trade, its negotiation principles included the concept of reciprocity. No country was expected to offer unilateral concession. As a result, within the GATT the liberal goal of free trade has been pursued through this mercantilist negotiation process.’ So, it is obvious that laissez-faire could not function as the actual mantra behind the formation of GATT. Then what was the real motive? We need to take into consideration the situation of world politics of 1950s and 60s to find out the answer. ‘It is important to note that liberalization efforts were facilitated by the willingness of the US to play a leading role in pushing the liberalization process forward. Freer trade was part of a larger geo-political strategy to help rebuild the US’s Cold War allies Japan and Western Europe.’ That’s why I think rather laissez-intérêt or ‘let interest do’ worked as a genuine driving force behind the formation of GATT. Following discussion will make it more apparent.

It is widely said that ‘GATT was the victim of its own success.’ Its minimum success with limited regulatory mechanisms adjoined it to the further complexities. Over time, Issues like Voluntary Export Restrictions (VERs), Non-Tariff Barriers (NTBs), Dispute Settlement Mechanism (DSM), emergence of necessity of Intellectual Property Rights (IPRs) started to come forth and open up the ineffectiveness of GATT as an obsolete institution to go anymore with demand of time. Along with them, increase of members in GATT with the newly independent states from Afro-Asia, due to break of European colonial rule in those continents in 1960s and 70s placed GATT in more challenging situations. ‘By the early 1980s, it was increasingly clear that the GATT’s rules would need to expend to include not only these new forms of protectionism but also a growing list of other trade related issues.’ Agriculture topped the list since majority of the members of the GATT were agriculture based economy countries. At that time GATT’s most significantly important round, among eight, the Uruguay Round was initiated to resolve all those issues. Among those issues agriculture, free trade and IPRs were important for Least Developed Countries (LDCs) for their economic development.

Since agriculture is the most relevant issue I shall try to explore here in abridged. The issue of agricultural sector trade was effectively excluded from the GATT at an early stage of the agreement’s life.  It was not until the opening of the Uruguay Round in 1986, however, that agriculture was placed finally on the negotiating agenda. The agricultural negotiations in the Uruguay Round were by no means easy. The broad scopes of the negotiations and their political sensitivity necessarily required much time in order to reach an agreement on the new rules. The only conditions were that agricultural export subsidies on industrial products were prohibited.  Agricultural export subsidies should not be used to capture more than an “equitable share” of world exports of the product concerned. The GATT also allowed countries to resort to import restrictions (e.g. Import quotas) under certain conditions, notably when these restrictions were necessary to enforce measuring domestic production. Some net exporting countries, such as the USA, sought to maintain their market share by resorting to export subsidy programs, whilst those exporters that were unable or unwilling to do this, saw their market shares decline further. International tension and disputes over agricultural trade arose with increasing frequency, and GATT institutions were often used in an attempt to resolve these disputes. In fact, 60 percent of all trade disputes submitted to the GATT dispute settlement process between 1980 and 1990 were concerned with agriculture.

The agriculture agreement negotiation was hindered by several interest blocks e.g. Cairns Group, a group of nineteen agricultural countries from Latin America, Africa, and the Asia-Pacific region, Quad countries include the USA, Canada, Japan and the EU are mention worthy. Within the EU, the region’s support for agriculture and its protectionist stance reflects the strong influence of countries like France. Any concession here requires tough intra EU bargaining. On the other hand, the USA stands sometimes besides Cairn Group but other time against it. All stands are dictated by the intérêt of either the domestic politics or by the economy of the respective countries. In 1996 the USA executed some agricultural reforms like stepping toward the reduction of supporting farmers in various forms were boomeranged by political resentment. Later it had to alter its policy to appease the situation.

Was there any significant development of agriculture agreement in the last ministerial meeting of Doha Round in Bali? Critiques have weighed on achievements rather than failures. This year ministerial conference resolutions are taken the biggest success in more than last a decade and a rejuvenation of WTO as well. Bali took a major decision on duty free, quota free access of goods of LDCs to the developed countries which will especially be applicable for the USA. Another important decision was about the trade facilitation will simplify customs procedures by reducing costs and improving their speed and efficiency in future. But the Cuba won’t be able to get the benefits from major WTO decisions. Cuba still suffers from USA’s trade embargo continued for last fifty years which eventually deprives it from getting maximum benefits of WTO trade agreements.

Agreement on agricultural subsidies could not see lights due to opposition from India. India’s stubborn stand will make suffered many LDCs when benefitted others varying at different levels. Doha Round aimed for ‘fair and market-oriented agricultural trading system’ which was anticipated to be implemented in this year ‘conference.  This was to be achieved by the way of substantial reduction in trade distorting domestic support for agricultural commodities, improvements in market access for agricultural goods and reduction in export subsidies. Some export oriented LDCs want to abstain developed countries from subsidizing their agricultural exports but subsidizing their own. India told it will continue to subsidize its agriculture to save small farmers and ensure food security. If India decides to stop exporting to secure its own food security then it will cause for concerns for many countries like its neighboring Bangladesh, Nepal, and Bhutan and so forth. There will some reliefs for developing countries since Bali declared that developing countries will not be challenged legally even if the limit to trade distorting domestic support by a country exceeds ten percents.


Now let us come to conclusive remarks in this discussion. Why WTO could not achieve its optimum success? Sometimes it was due to clash of interest and sometimes it was game of politics which made it an inept institution. Now let us back to the point of two logics. Which logic dominates in respect of WTO performance? I think none of those. Since we have experienced that domestic politics can dictate international trade resolutions and international economic resolutions can break domestic status-quo. None of these can be thought desolately rather they are interlinked and complementary to each other. Above both of those logics, I think one mantra dominates everything; everything from politics to economics at local to international levels. And it is none but the mantra of laissez-intérêt!

This article will be available in the upcoming issue of Foreign Affairs Insights & Reviews (www.fairbd.net)