Dominant issues in free trade

The trading system has been transformed by forces of globalization, which dramatically increased global trade, an ever greater interdependence (Spero & Hart, p. 92), and increased international economic interactions (p. 8). Liberal economic and trade policies advocated by the WTO, IMF, and World Bank reinforced globalization and new forms of trade in services and trade-related intellectual property and investments emerged. Economic globalization has been fundamentally redesigning and centralizing the world’s political and economic arrangements in a way unsurpassed since the Industrial Revolution (Barker & Mander, p. 251).

However, globalization created conflicting political demands. On the one hand, calls were made for expansion of trade liberalization and international management of old and new trade issues, on the other hand, many groups demanded protection and a halt on the forces of globalization (Spero & Hart, p. 92). Furthermore, domestic politicization of trade matters in the U.S. and throughout the world has been an important constraint on globalization in general and trade order in particular (Spero & Hart, pp. 67& 68).

One of the main issues in free trade in the international economic system is protectionism, which had dominated the interwar era (Spero & Hart, p.68) but is becoming increasingly significant since the beginning of the era of interdependence in 1971 (p.10 ), during which, developments in domestic politics conflicted with international trade managements and undermined the GATT agreements shifting the world economy towards protectionism (pp. 73-74). Protectionist nations usually restrict free trade to balance market objectives with social ones (Vogel, p. 15). Moreover, Nations-whether developed, less developed or developing-become under increased protectionist pressures to maintain its competitive edge and protect its domestic products against foreign competitors (Spero & Hart, p. 75). Periods of inflation and economic recession generally contribute to more protectionism and implementation of trade restricting policies, where liberalization and cooperation might be perceived as contributing factors to economic meltdown.

Several barriers to international trade are forms of protectionism. These barriers include tariffs, quotas, agricultural subsidies, non tariff barriers (NTBs), safeguards, voluntary restraint agreements (VRAs) and antidumping measures (Spero & Hart, p. 87). In 1948 countries convening in Bretton Woods, agreed to generate a system that would accelerate worldwide economic development. The General Agreement on Tariffs and Trade (GATT) was created mainly to set tariffs and quotas on manufactured goods. In the years following, however, business interests exerted considerable pressure to extend GATT rules to regulate investments, services, intellectual property rights, and so on (Barker & Mander, p. 252).

Although the GATT succeeded in reducing tariffs, quotas and liberalizing international trade (Spero & Hart, p. 87), agriculture was subject o a separate GATT regime and did not benefit from the liberalization process of the postwar era. Therefore, national agricultural policies of most developed countries (US, Japan, EU) remained interventionist and protectionist (p. 86). NTBs such as government procurement policies, customs procedures, health and sanitary regulations, national standards, and a broad range of other laws and regulations that discriminate against imports or offer assistance to exporters, remained major barriers to free trade (p. 87). This situation was complicated by the fact that the GATT offered few guidelines to reduce NTBs, (p. 88), and were also ineffective on safeguards (p. 97).

Another form of protectionism was the use of VRAs (Voluntary Restraint Agreements). VRAs began in 1950s and 1960s and soared in 1980s (Spero & Hart, p. 89) and were designed to protect import-sensitive industries, which countries believed were inadequately protected by unclear laws of the GATT antidumping measures and safeguards (p. 88) Therefore, the NTBs and the VRAs, and the increased government interventions in the economy along with the shift in comparative advantages, rendered the GATT regime increasingly irrelevant since it was designed to manage mainly quantitative import restrictions and tariffs (Spero & Hart, p. 90).

Tokyo Round (1973-1979), succeeded to make progress in regulating NTBs by establishing new NTB codes. However, these codes were incomplete and applied only to its signatories—developing countries were no convinced of their values and chose not to sign, which made them subject to discrimination legal under GATT rules. Moreover, the Tokyo Round did not succeed in reaching an agreement in agricultural trade liberalization (Spero & Hart, pp. 90-92). As result, the world moved away from multilateral trade agreements in favor of bilateral and regional ones, in order to address the deficiencies of the GATT. Moreover, trade with Newly Industrialized Countries (NICs) and other developed countries grew in the 1980s and 1990s, organized labor and environmental groups tried to advance their laws and practices in other countries and to modify NAFTA to include such provisions (p. 95)

The 1970 and 1980s, witnessed the growing importance of services in the international economies and international trade of the developed countries, accounting of 20-30% of world trade, whether services produced and consumed within the same market or traded internationally. This trend of growing production and trade in services continued in the 1990s, especially in the telecommunication, banking, insurance, law and accounting areas (Spero & Hart, p. 107). Barriers to trade in services had not been subject to the process of liberalization, because services were not covered by the GATT regime. (p. 97). The technological advances and Information Revolution have resulted in unprecedented number of innovations in telecommunications and pharmaceutical products. However, piracy undermined the ability of high-technology firms, especially computer software and pharmaceutical companies, to compete internationally and, thus, disrupting trade. Many firms and their governments argued that GATT should be broadened to cover intellectual property issues (Spero & Hart, pp. 93 & 94)

The Uruguay Round agreements (1987-1994), concluded by the Agreement of Marrakesh, became the foundation for further globalization of world trade (Spero & Hart, p. 101), and resulted in several breakthrough agreements that benefited both developing and developed countries. Among the main agreements reached during the Uruguay Round are: Further cuts in tariffs; Significant reductions in agricultural subsidies; Elimination of textile and apparel quotas over ten years; New trade rules for services; Intellectual property and trade-related investments, e.g. the General Agreement on Trade in Services (GATS), the Trade-Related aspects of Intellectual Property Rights (TRIPs), and the Trade-Related investment Measures (TRIMs); Binding procedures for the settlement of disputes; Agreement on safeguards with clearly defined rules and regulations; and finally establishment of the WTO (p. 97)

Since its inception in 1995 as part of the Uruguay Round negotiations, the World Trade Organization (WTO) has been globalization’s rule-making and governing regime, with free trade becoming the organizing principle of global trading system (Barker & Mander, p. 251). A key rule in governing global trade which the WTO follows is the “distinction between a product and the way it is produced” (Vogel, p. 15). This rule has led proponents of WTO to criticize it for favoring big corporations over human rights, democratic and environmental standards and labor laws (Baker & Mander, 251).

According to Spero & Hart (2003), despite of the significant breakthrough agreements during the Uruguay Round, which even continued beyond the Agreement of Marrakesh in 1994, there are major remaining issues the free trade that have not been adequately resolved. Among these remaining issues are: Agriculture remained highly protected, which is of much concern to developing nations. Griswold et al in 2006 argued rich countries agricultural trade barriers and subsidies remain the single greatest obstacle to a comprehensive WTO agreement on trade liberalization. They added that eliminating subsidies will Lower food prices, increase exports and help international peace and environment (pp. 42-49)

Other major issues that were not adequately addressed by the WTO include: Antidumping and safeguards measures were only partially controlled by the WTO; The WTO dispute settlement understandings (DSU) were criticized of being overly legalistic; The agreements on services, intellectual property and investment measures had gaps in coverage that needed to be closed; The significant reduction in tariffs and NTBs exposed new set of national policies that affected trade flows, e.g. competition and antitrust policies which included practices used by powerful local competitors that restrained trade; Barriers to open up use of telecommunication infrastructure to further enhance e-commerce; Environmental and labor policy and concerns that liberal international trade could result in environmental dumping (p. 102)

Furthermore, several NGOs called to reform the WTO to include interest groups to participate along with governments in the WTO decisions. Other groups and governments disagreed arguing that NGOs already have access to decision making through their national governments and national decision processes. More transparency in the operations of the WTO, making documents and drafts of treaties available to the general public (Spero & Hart, p. 104)

Finally, in my opinion, since the September 11 attacks, terrorism emerged as one of the dominant issues in global trade will undermine further trade and monetary liberalization. Global terrorism disrupts the movement of people, and finances, and threatens investments. The next round of multilateral trade negotiations will have to address the threat of global terror on continuous process of liberalization and globalization in general.

References
Barker, D., Mander, J. (2000, Fall). The WTO and invisible governments. Peace review, 12 (2), pp. 251-255.
Griswold, D., Silvinski, S., & Preble, C. (2006, February). 6 Reasons to kill farm subsidies and trade barriers. Reason 37(9), pp. 42-49.
J. E. Spero & J. A. Hart (2002). Politics of International Economic Relations, 6th ed. New York: Wadsworth Publishing Company.
Vogel, D. (2000, June). The wrong whipping boy. The American prospect 11(14), pp. 15-17.