For more than 50 years, the world's countries have attempted to undo the terrible harm inflicted by inter-war and post-World War II protectionism. Starting with the General Agreement on Tariffs and Trade (GATT), which has evolved into today's World Trade Organization (WTO), countries have slowly made strides to dismantle tariffs and non-tariff barriers on manufactured goods, services and agricultural products.
As with most processes of this type, it was relatively easy to develop consensus among the original member nations on the first steps toward freeing trade. But now, decades later, consensus is elusive. As the former Chief Economist at the World Bank, Joseph Stiglitz is intimately familiar with the issue of free trade, the ins and outs of the WTO, the problems being debated in the current Doha Round of trade negotiations, and the obstacles faced in earlier negotiating rounds. In Fair Trade For All: How Trade Can Promote Development, he and Andrew Charlton have presented an accessible description of the hurdles still faced, as well as a personal perspective on the source of the problems and potential solutions.
Much of their description is spot on. As they repeatedly state, many of the current trading rules are biased against the smaller countries of the world. Market access is not symmetrical. Countries like Bangladesh are free to export airplanes and a lot of other things they don't produce, but not the textiles and apparel they do. Opening trade, for its part, does not affect everyone in a country equally. Some win, some lose.
Stiglitz and Charlton do agree with most economists that "free trade is, in the long run, the preferred regime," but they fear developing countries have markets that are incomplete, imperfect, and missing vital components. They point out, for instance, that eliminating agricultural subsidies in the "developed" countries is likely to have the net effect of promoting development.
Moreover, tax policies advocated (or imposed) by international institutions on poor countries have created incentives that enlarged the informal economy at the expense of the formal market. Insightfully, the authors point out that developing countries stand to gain more if only they would eliminate tariffs and other barriers aimed at each other, rather than solely blaming developed countries. Finally, bilateral agreements such as NAFTA are not truly "free trade agreements" in that they fail to eliminate agricultural subsidies that pit the agribusinesses of one country against the farmers of another.
The authors' views on these issues are fairly standard among economists. It is in other aspects, contained in the title of the book, that differences begin to flare. How does one define "fair" trade? What factors are key to development? And why do we even divide countries into "developed" and "developing" in the first place?
Indeed, a couple of years ago I shared the podium with a president of a steelworkers local in Cleveland. At the time the United States had imposed tariffs on steel imports. As we debated the pros and cons of free trade, the president of the local repeatedly used the term "fair trade." Finally I turned to him and asked, "Fair to whom? Fair to the consumers paying higher prices? Fair to the manufacturers who use steel in production, who are becoming less competitive in the global market, and who are laying off workers? Fair to those workers who now are out of a job?" He, of course, was thinking only of his union members.
Stiglitz and Charlton indicate in their book that "fairness" of this type is not what they have in mind. They, too, are critical of the steel tariffs. So what is the fairness paradigm they are advocating?
Fairness is always in the eyes of the beholder. Stiglitz and Charlton see "fairness" in agreements that arc based on "principles," not economic power. …