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The WTO: Threat to Free Trade

December 1, 1999

To understand the WTO requires this counter-intuitive
insight: while purporting to advance free trade, it is actually
its major threat. In the past, the loopy social reformers lobbying
and protesting outside the WTO’s Seattle meetings had no
forum and certainly no mechanism to use to advance their
pet causes. The creation of the WTO in 1995, a disastrous
turn of events pushed even by some free-trade proponents,
provided just what they needed.

Moreover, like all bureaucracies, the WTO is mainly
concerned with expanding its own power and jurisdiction,
which means it has no principled objection to making
international trade a vehicle for the promotion of "labor
rights" and crippling environmental regulations. The
classical ideal of free trade, which requires no central
management, is the real victim here.

One the one hand, we have the assembled governments
bickering for control of the WTO’s formidable powers to
negotiate trade disputes and impose sanctions. The big
three especially—Europe, Asia, the US—are battling it out
over the appointment of judges who can rig the rules to
favor their own manufacturers against overseas
competitors.

On the other hand, we have the demonstrators with their
placards and their chants. Beloved by the media, they are a
motley collection of wooly-headed environmentalists,
sixties leftovers who oppose all economic development,
thuggish labor union officials, whining advocates for the
rights of "children" and "women," and economically
ignorant opponents of international trade itself.

They are only posturing as protestors, however, since they
are demanding that the WTO do what the Clinton
administration would have it do if it faced no resistance.
Indeed, the WTO incorporates legal mechanisms for
regulating the world economy exactly in this way, otherwise the Clinton administration would not have supported its creation. Even the
original charter included a tip-of-the-hat to these special-
interest concerns.

As Clinton himself says, "I also strongly, strongly believe
that we should open the process up to all those people who
are now demonstrating on the outside. They ought to be a
part of it.... And I think we should strengthen the role and
the interest of labor and the environment in our trade
negotiations... I’m very sympathetic with a lot of the causes
being raised by all the people that are there demonstrating."

The entire affair makes you long for the days of GATT,
which only four years ago served as an inconspicuous legal
apparatus for trade negotiations. It wasn’t perfect, and
wasn’t even necessary, but it was a heck of a lot better than
the politicized and bureaucratized approach that its
replacement was from its very inception.

In previous centuries, trade among nations worked without
the intervention of a legally-christened arbiter of the terms
of trade. Governments sometimes imposed heavy
restrictions on imports and exports, but disputes were
generally handled by the parties to the exchange
themselves. Merchant law regulated contracts, while trust,
reputation, and consumer sovereignty were the guiding
forces that kept everyone honest.

It was the great insight of the British classical liberals that
trade did not need to be managed either domestically or
internationally. Consumers and producers, regardless of the
country they lived in, were capable of negotiating their own
deals, whereas tariffs and other trade barriers only ended up
harming everyone in the long run. Accordingly, the
classical liberals favored eliminating all restrictions on trade
and opposed every manner of government management.

But governments don’t like this system because it leaves
them out of the picture. Since early in this century, they
have tried to establish an international structure to manage
it. But free traders knew better: they stopped Woodrow
Wilson’s effort to establish an World Trade Tribunal
after World War I, and they defeated Harry Truman’s
scheme to impose an International Trade Organization as
the third leg of the Keynesian-inspired Bretton Woods
system.

The WTT and the ITO were reincarnated by the Clinton
administration as the WTO in 1995 as part of the Uruguay
Round of GATT trade talks. The treaty faced an uphill
battle in the Senate, and it goes without saying that most
Americans either had no opinion on the matter, or opposed
it as they oppose anything that smacks of the New World
Order.

The WTO was ratified because the payoffs to the Senate
were high enough, and, even more crucially, Washington’s
free traders lacked the intellectual stamina to see this pact
as the threat it was and is. Institutions like the Cato
Institute and the Heritage Foundation not only capitulated
to the Clinton administration; they joined it on the front
lines, lobbying hard for ratification of the WTO. Richard Cobden and John Bright must have been writhing
in their graves.

The world economy is larger and more integrated than
ever, and to this reality we owe a great deal of our present
prosperity. At the same time, world trade has never been
more politicized. Never before have labor unions,
environmentalists, and loopy social reformers been able, so
successfully, to use international trade as their preferred
ground of political agitation. Never before have
protectionist governments—the US a main player among
them—had such access to litigation and intervention.
Never before has a developing capitalist economy like
China been forced to crawl before a cartel of governments
just to gain admittance to the world trading system. The
WTO has proven to be no friend of a truly liberated
international economic order.

* * * * *

Llewellyn H. Rockwell, Jr., is president of the Ludwig von
Mises Institute in Auburn, Alabama.


See also:

"Party Time at the WTO" by James Sheehan

"Sayonara, WTO" and "From Nafta to 'Superstate'" by Jeffrey Tucker

"Foreign Trade Follies" by Lew Rockwell.


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