Academic journal article World Review of Political Economy

International Trade, WTO and Economic Development

Academic journal article World Review of Political Economy

International Trade, WTO and Economic Development

Article excerpt

1.Introduction

The World Trade Organization (WTO) is widely seen as promoting prosperity through trade, especially favouring developing countries. This is presented so as to achieve "fair trade" and economic growth in developing countries (WTO 2013). A new round of global trade negotiations, the Doha Round, has taken place under the WTO. It is said that increased trade and interdependent goods and services and money markets underscore the importance of international cooperation to contain crises and promote growth. The proponents of trade liberalisation argue that multilateral trade negotiations would achieve these goals, and poor countries particularly would benefit from it; while critiques say that trade rules under the WTO and international financial institutions will acquire more power, which could restrict the ability of developing countries to pursue an independent economic policy.

Globalisation is described as a process of integration into the world economy. It consists of three key areas, namely trade, investment and finance. This process is also associated with greater openness, economic interdependence and deepening economic integration with the world economy. The aim of this article is to study the issue of "free trade" in the light of past experiences and whether we can draw some lesson from it.

This article aims to examine free trade in a historical perspective in order to understand its implications and future prospects for development. The focus of the study also briefly discusses previous attempts by military force to open up economies in the name of "free trade" in the colonies by the European powers during the late 19th century. Britain adopted "free trade" policies in the 19th century when it had relatively more advanced technologies and industries compared with other European countries. Such policies were extended to the colonies to further its business and trade interests. Since the mid-19th century, Africa and Latin American countries were integrated into the world economy as the supplier of primary commodity, as envisaged by the "comparative advantage" model. However, after the Second World War these countries opted in favour of industrialisation, with different degrees of political commitment and state involvement via "import substitution industrialisation" policies. Despite a number of constraints, their growth rate performance was in fact better than it had been during the period of market liberalisation. However, such policies came to a dead end due to debt crisis and in the changing international environment (Ghose 2004; Siddiqui 2012a).

Under such circumstances (i.e., both domestic and international), there was strong pressure on developing countries to accept trade and financial liberalisation by the International Monetary Fund (IMF), World Bank. But the difficulties of the Doha Round negotiations under the WTO were due, it seems, not only to lack of reaching a consensus on agriculture, but also to loss of national policy manoeuvres felt by the developing countries. The governments displayed an inability to deploy effective policies in situations where their assistance might be needed to spur economic development or fight high levels of underemployment. Their domestic policy space and flexibility was being constrained by the proposals under the WTO negotiations based on comparative advantage, which has major weaknesses on both theoretical and empirical grounds. On theoretical grounds, its weakness stems from not addressing externalities such as market failures, environmental costs and investment in education.

On empirical grounds we have examples of successful economic development in East Asian economies such as Malaysia (Siddiqui 2012b), South Korea, Singapore and Taiwan, and more recently in China. The success of their higher growth rates shows a clear role for governments in smoothing out the difficulties. These countries have successfully taken independent policy measures to spur economic development, which has proved very critical in the early years of their path to industrialisation (Siddiqui 2016). …

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