Trade Policy for the New Administration

TRADE POLICY FOR THE NEW ADMINISTRATION Charles E Doran like Ibsen's Master Builder, the United States contemplates its great creation: the twentieth century liberal trade order. Also like him, the United States fears the words, "Make room! Make room! Make room! . . . Someday the younger generation will come knocking at my door." The United States, along with its partners, must determine the next stage of construction. It is no time to fear the younger generation, or to move aside, but rather to include them in new and larger projects that will benefit the entire trading system. Liberalization or Fragmentation? The architects of free trade policy have almost come to expect that the tide of multilateral trade liberalization flows not without hard work but nonetheless rather automatically. Still another success during the ongoing Uruguay round in Geneva is expected to follow on the heels of the various trade rounds of the past. No one doubts the first principle of a liberal trade order. A maximum opportunity for specialization, and for a free flow of goods and services internationally, will lead to increased economic growth, wealth, and jobs for the entire trading system. What some governments do question increasingly is whether they can participate equally in the benefits. If enough governments question the result for themselves (not the principle in general but the idiosyncratic result), the effect on the inertia of trade liberalization will similarly be a slowdown. Charles F. Doran is professor of international relations at SAIS. He has been an adviser on trade and trade dispute resolution for several years. His latest book, Systems in Crisn: New Imperatives ofHigh Politics at Century's End (1989), discusses these matters in the broader context of strategic policy. 141 142 SAIS REVIEW At that point, fragmentation of the trade order may overtake the liberalization process. Fragmentation can take a number of paths. The most primitive course is an increase in covert protectionism as the level of overt protectionism declines.1 It would be interesting to examine the empirical data of a study on the system as a whole and not just individual trading partners , including all goods and services rather than just related manufactures . A reliable study could cast some light on whether overall trade has actually been freed up as tariffbarriers have come down significantly since the Tokyo Round. Has the increased use of nontariff barriers in manufacturing, combined with the impediments in agriculture, commodities , and services, generally offset the hard-won gains of multilateral trade liberalization? The extent to which one more obscure barrier is substituted for another, and the degree to which subsidization and support occurs in an area where other barriers have been removed by international negotiation, is a troubling aspect of trade relations. A less primitive path of fragmentation to pursue is the establishment of trade areas or common markets allowed by Article XXIV ofthe General Agreement on Tariffs and Trade (GATT), since even GATT could not prevent the formation ofsuch blocs where the amount of trade diversion may substantially outweigh the amount of trade creation in the long run. Although in theory these groupings may be open to nth party participation, in practice the factor endowments, industrial structure, geographic location , predominant trade flows, and political orientation of the nth party often make accretion extremely unlikely (for example, will Canada ever join the European Community?). Eventually, the establishment of large trade groupings will mean that the individual partner in a market or trade area will attempt to hide behind the central authority of the grouping in trade negotiations so as not to have to concede benefits, thereby impeding trade liberalization and making bargaining much tougher. A much discussed matter in international political economy is whether a hegemonic leader is necessary in trade negotiations to preserve the rules and to keep the talks moving. The essence of such hegemony is that the large and prosperous leader gives disproportionate benefits to smaller or otherwise less well-placed partners.2 If the Canada-U.S. free 1 . David G. Tarr and Morris Morkre, "Aggregate Costs to the United States of Tariffs and Quotas on Imports," in Dominick Salvatore, ed., The New Protectionist Threat to World Welfare (New York: Elsevier Science Publishing...