Mises Daily Articles
The WTO: Threat to Free Trade
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.