The White Witch of Mercantilism

By Daniel T. Griswold

Daniel Griswold is director of the Cato Institute, Center for Trade Policy Studies. He will be filing dispatches this week from Hong Kong, where he is attending the World Trade Organization's Sixth Ministerial Conference.

December 16, 2005

Talk is beginning in the press that the WTO talks here are in deep trouble and headed for failure. That speculation may prove true by the end of the conference Sunday, but there is reason to think such judgment may be premature.

Brinksmanship seems to be built into these multilateral trade negotiations. Under the mercantilist mindset that predominates here and back in the United States, trade is all about exporting more, while opening one's own market to imports is a grudging "concession" made to other countries to persuade them to open their markets. Under those assumptions, countries are reluctant to offer to lower their own barriers unless other countries offer comparable liberalization. Thus the negotiations seldom move forward unless all major players make serious offers together, which has yet to happen.

The last round of such talks, the successful Uruguay Round, took eight years and appeared to founder at several points along the way. Much of the final agreement did not come together until the last few months and weeks of negotiations in 1993. Minds were focused at the end by the looming expiration of the U.S. president's trade promotion authority. That very same, hard deadline exists this time around, in June of 2007.

If the Hong Kong ministerial fails to produce any significant breakthrough, it will be because of the mercantilist mindset that seems to haunt these talks like the White Witch of Narnia. The European Union (read France, Ireland, and a minority of other members) refuses to offer serious reductions in its agricultural trade barriers, even though its citizens would be the primary beneficiaries. India and Brazil refuse to offer meaningful reductions in their non-agricultural tariffs, while most developing countries balk at further opening of their largely closed service markets.

Meanwhile, the United States, which has generally been in the lead on promoting liberalization, refuses to discuss any further restrictions on the use and abuse of antidumping laws.

The attitude of developing and least-developed countries is especially self-defeating. Poor countries desperately need to open their markets to global competition. A major reason why they remain poor is their relatively closed markets that shield inefficient domestic producers. Opening their markets to more competitive global providers of telecommunication, financial, banking, insurance, and other services can make their whole economies more productive and attractive to foreign investment. Yet they refuse to breath in that invigorating air because some rich countries cling to their own remaining trade barriers. Go figure.

Of course, developing and least developed countries are perfectly justified to complain about rich-country trade barriers and subsidies in agriculture. Those programs do hurt farmers in poor countries, as a recent Cato study on cotton and other programs confirms. But their political leaders will be foolish and irresponsible if they hold on to their protectionist policies only because other countries refuse to change theirs. In this way, Oxfam and other NGOs that encourage poor countries to hold on to their high trade barriers until the rich countries get rid of their farm subsidies and trade barriers are only excusing bad policies that are keeping hundreds of millions of people poor.

The Hong Kong ministerial conference and the Doha Round can only produce success if WTO members decide collectively to do themselves all a favor by mutually lowering their own trade barriers.