Free Trade Or Fair Trade? An Enquiry Into The Causes Of Failure In Recent Trade Negotiations

Trade policy is at a crossroads. So is trade diplomacy. The failure of the “traditional import substitution” policies of the 1950s–1970s has been followed by the failure of trade liberalization in the 1980s and 1990s by developing countries. In particular, the deadlock in the negotiations during the recent meetings of WTO has demonstrated the severe differences among various groups of member countries. Focusing on frictions between developing countries and industrial economies in the particular area of trade in manufactured goods, the purpose of this paper is to argue that the failure of the negotiations is related to a number of fallacies and contradictions surrounding the concepts and practices of universal trade liberalization and infant industry protection. These main fallacies include: the philosophy behind universal and across-the-board trade liberalization; the contradictions in the design and implementation of GATT/WTO rules to the detrimental interest of developing countries; the theory and practice of infant industry protection; and, in particular, perceptions about the interests of developed countries in universal and across-the-board trade liberalization by developing countries. Emphasizing that free trade should be the ultimate aim of every nation once all economies have reached the same level of development, it is argued that there is a need for revision of international trade rules. In the design of the new rules more attention should be paid to the level of development and industrial capacity of developing countries. Developing countries should have a clear trade and industrial policy as well as negotiating strategy before entering the negotiation. To play such a proactive role, along the lines suggested in the UNCTAD “Positive Agenda”, developing countries should: link their trade policy to their development objective; and follow a dynamic trade policy geared to their level of development, industrial capacity, structural characteristics and changes in the world economy, as suggested by Shafaeddin (1995). Moreover, in their common negotiation strategy, instead of agreeing on a “least common denominator”, they should attempt to cooperate en elaborating a strategy aiming at the trading rules that differentiate countries, in accordance with some agreed criteria. Such criteria may include a number of indicators, such as per capita income, the degree of dependence on primary commodities, the share of manufacturing in GDP, etc. Finally, it is a myth to believe that concessions will always be made to developing countries on “moral grounds”. “Bargaining” is the name of the game. Developing countries should mobilize and make the best use of whatever bargaining chips they possess, however small they may be; and developing countries can have some leverage in trade negotiations if they mobilize Shafaeddin, 1984). Bargaining requires not only bargaining assets, but also knowledge, information about the issues concerned, and training for undertaking trade negotiations. In such a context, at the country level there is a need not only for policy formulation and for strengthening the capacity of commercial diplomacy to enhance bargaining skills, but also for strengthening the capacity for trade and industrial policy formulation.