Bhagwati on the WTO

Jagdish Bhagwati, a prominent advocate for free trade, served on a group of experts that advised the director general of the WTO on future chage needed at the organization. He summarized his own views on the subject in a short article entitled Reshaping the WTO. (Note: this is a relatively short and accessible paper.)

Bhagwati argues that there several fallacious criticism of the WTO be promoted by otherwise well-meaning NGOs like Oxfam and Action aid. These include the following:

• "Poor countries suffer from systematic rich-country “hypocrisy” leading to “double standards” in trade policy, with the rich countries having more trade barriers than the poor ones."  Bhagwati notes that developed nations in fact have much lower levels of tariff protections than developing nations do.
  
• "While trade liberalization by rich countries is beneficial, for the poor countries trade liberalization does not bring benefits." Bhagwati argues that the scholarship and empirical evidence argues to the contrary, despite the repeated claims of a small number of economists. Also, he argues that protection given to 'infant industries', which is the primary alternative to liberalizing trade, tends to be indiscriminate in nature, stifles the competitiveness of the industry, and becomes politically entrenched. In his view the infant industry argument "...has always been indulged to excess whereas experience shows otherwise."

• "Agricultural subsidies in the rich countries are keeping the developing world poor." Bhagwati notes that 45 out of 49 LDCs are net importers of food and thus benefit from the agricultural subsidies of other countries. He argues that middle income countries with large agricultural exports, who are negatively impacted by these subsidies, have been trying to link this issue to the welfare of poorer nations for political convenience. 

The Erosion of Non-Discrimination: Bhagwati feels that the proliferation of Preferential Trade Agreements (PTAs) between nations has eroded the norm of non-discrimination between nations that was established under GATT. Bhagwati would expand on this argument in his 2008 book Termites in the Trade System: How Preferential Trade Agreements Undermine Free Trade. In his 2005 paper he argued:

All economists now recognize the resulting “spaghetti bowl” problem, as I have christened it. The world trading system is charcaterized by a chaotic criss-crossing of preferences, with a plethora of different trade barriers applying to products depending on which countries they originate from. This is a fool's way of doing trade—not only does it destroy the efficient allocation of resources, but it flies in the face of the fact that today it is becoming almost impossible to define which product is whose. It is hard to believe that sensible men in charge of trade policy today, including the USTR, the EU Trade Commissioner and other luminaries of trade are so unmindful of the fact that, in the name of free trade, they are damaging the world trading system through discriminatory PTAs as much as the protectionists did in the 1930s.

Encroachment of Unrelated Agendas: The other problem Bhagwati sees for the WTO is the lobbying by rich nations to attach other issues, such as protections for intellectual property right, to the WTO's rules. He sees PTAs as a means for these nations to insert these issues into the international agenda and build legitimacy for the inclusion of issues into the WTO. 

 Yet another threat to the multilateral trading system arises from the ability of rich-country lobbies to capture, through use of PTAs and the design of S&D preference schemes, the trade liberalization process to advance their unrelated agendas. These lobbies pretend, of course, that “fair trade” and respect for “collective preferences”—both self-serving phrases that conceal the pernicious nature of the demands—require that their pet concerns such as labor standards be worked into trade agreements and institutions such as the WTO.  

This has united the major developing countries such as India and Brazil, both led by democratically elected progressive leaders, against the inclusion of such extraneous issues into trade negotiations and institutions. The Free Trade Agreement of the Americas (FTAA) has also been held up by Brazil, which insists correctly on confining it to trade liberalization, while the United States wishes to corrupt the FTAA with several extraneous issues. Revealingly, none of the many PTAs among the poor countries ever include these extraneous issues—their inclusion arises only when the U.S. and the EU are members.