Is the World Ready for Free Trade?

Charles R. Carlisle

From Foreign Affairs, November/December 1996

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Summary:  Though a leap to global free trade is a nice idea, the political support is just not there. Nor is any such earthshaking step necessary. The World Trade Organization has an extensive built-in agenda that should not be derailed. Fears of regionalism are greatly exaggerated, since regional trade has not increased much since the early 1970s and current plans for free trade in the Americas and the Pacific are unlikely to succeed. Few countries share the free-trade faith of the United States and Great Britain, and even in those places, economic anxiety threatens to push trade in the other direction.

Charles R. Carlisle is a Partner in the consulting firm of Carlisle and Handal International. He was Deputy Director General of the GATT from 1987 through 1993.

CHARTING A COURSE

How to move forward on liberalizing global trade? By incremental steps of an already agreed-upon agenda or by one great leap to free trade in a grand new negotiation? This question arises as trade ministers from the World Trade Organization's 120 member countries prepare to meet in Singapore in December to chart the course of further trade liberalization. This will be their first gathering since they met in Marrakesh in April 1994 to bring GATT's Uruguay Round of negotiations to a successful conclusion.

A long series of preparatory meetings at the WTO's headquarters in Geneva, which began in the spring and may continue until the eve of the Singapore conference, has foreshadowed what will probably happen in December. They suggest that the world is not ready for a leap to global free trade by a set date early in the next century.

Unless an important issue disappears during the preparatory work, the ministers will be asked to decide four major questions. Three of these, although potentially important to the long-term development of the trading system, raise collateral issues not directly related to trade liberalization. There is perhaps a 50-50 chance that the WTO will decide to address, although not through negotiations, the question of international rules for investment and the new question of "competition policy," covering government and industry practices that restrict competition. The third and most hotly contested question will be whether the WTO should take up internationally recognized labor rights. The United States, France, and other European countries have pushed the issue, but it has met with considerable resistance from the Association of Southeast Asian Nations (ASEAN), Japan, Australia, and others. Its opponents' expressed concern is that the proposal could lead to veiled protectionism, but some governments may hold other, unspoken objections. Either way, the odds that the ministers in Singapore will decide to address the matter in any significant way are slender to nonexistent.

The fourth and most important issue is the pace, depth, and breadth of the liberalization of global trade. The WTO already has an extensive "built-in agenda," decided in the Uruguay Round, that calls for major trade liberalization negotiations over the next decade. It is highly probable that the ministers will stay with that agenda, but should they? Some economists advocate a more ambitious course that would lead to completely free trade in the early decades of the next century. Prominent among them is C. Fred Bergsten, director of the Institute for International Economics. He argues that an agreement to achieve global free trade by 2010, or possibly 2020 for the poorest countries, could be achieved by a "grand bargain" that would insure lower-income countries against reversion to protectionism by the "old rich" in return for full access to their markets and those of Japan. He believes the grand bargain would create well-paid export-related jobs and check regional trading arrangements, bringing gains to the United States and the world economy.[1]

Earlier this year, Renato Ruggiero, the WTO's director-general, and Donald ...

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