Wednesday, March 28, 2007

Against the Washington Consensus

The following worry that "third rank" economists and "cheerleaders" are insufficiently aware of the downside of "free trade":Not to mention, myself.


Dustin Ridgeway said...

So are you an opponent of free trade? I knew you were obviously heterodox but I wasn't aware you were protectionist. I ask because a lot of heterodox economists like Barkley Rosser & Daniel Davies, while opponents of neoclassicism, are still proponents of liberalized trade.

What are your views exactly?

Robert Vienneau said...

I’m probably at fault for using the phrase "free trade". But, Dustin, I do not think of the issue as one of "free trade" versus protectionism. If you want a slogan, I like "Globalization from below".

Distinctions exist, for example, between tariffs on produced goods and barriers to international (financial) capital flows. Governance issues exist for the IMF, the World Bank, and the IMF. Who do they represent? Why hasn’t the ILO, for example, become as powerful as the WTO? At one point, the WTO, I think, overruled a US law that prohibited the sale of tune caught in turtle-unfriendly nets, whatever the nationality of the firm operating the boat that caught them. Does that seem to you a matter of “free trade” versus “protectionism”? And I seem to recall some non-Mexican corporation using NAFTA to prevent some Mexican town from requiring the corporation to clean up their waste. And what about those cookie-cutter IMF structural adjustment programs? I think cases have been found where the IMF have cut and pasted the name of one country over another into some document. Should their policies depend somewhere on the particular circumstances of the country?

I’ve already commented on the theory of international trade.

YouNotSneaky! said...

"whatever the nationality of the firm operating the boat that caught them."

You're confusing your turtles and dolphins. It was tuna/dolphins and turtles/shrimp.

"In 1991, a dispute between Mexico and United States put the spotlight on the linkages between environmental protection policies and trade. The case concerned a US embargo on tuna imported from Mexico, caught using “purse seine” nets which caused the incidental killing of dolphins. Mexico appealed to GATT on the grounds that the embargo was inconsistent with the rules of international trade. The panel ruled in favour of Mexico based on a number of different arguments. Although the report of the panel was not adopted, its ruling was heavily criticised by environmental groups who felt that trade rules were an obstacle to environmental protection. (Details here) "

The report of the panel concluded that:
" * that the US could not embargo imports of tuna products from Mexico simply because Mexican regulations on the way tuna was produced did not satisfy US regulations. (But the US could apply its regulations on the quality or content of the tuna imported.) This has become known as a “product” versus “process” issue.

* that GATT rules did not allow one country to take trade action for the purpose of attempting to enforce its own domestic laws in another country — even to protect animal health or exhaustible natural resources. The term used here is "extra-territoriality".

Note that the recommendations of the panel were never adopted (US and Mexico decided to settle the issue bilaterally.

If you're worried about the WTO serving as a tool of US (or rich countries) policy which seeks to trample poor countries' sovereignty then you should cheer this ruling. Either sovereign countries get to have their own environmental laws or they don't.

I can't find info on the shrimp/turtles case - it used to be up on the WTO website when the protest were in vogue - but if I recall correctly there the issue WAS one of the nationality of the exporters. Basically US laws said that it was fine for Latin American countries to export anti-turtle shrimp but not fine for Asian countries. The WTO report basically said "make up your freakin' mind" - either all imports of shrimp had to be turtle friendly or none of them had - in line with the "Most Favored Nation Clause". I think this was also an issue in the tuna/dolphin case.

Anyway, as Bhaghwati often points out WTO is far more democratic than IMF and WB because it's a one-country one vote system as opposed to a voting system based on financial contributions (like the IMF is). As a result poorer countries have a lot more leverage there then in the other organizations. To the extent that WTO ruling and policy may not be in accordance with your preferences to a large extent this may very well be due to the fact that your preferences are in conflict with those of poor country governments who put development, exports and income growth ahead of turtles and dolphins. One can't pretend that this trade off doesn't exist.

Robert Vienneau said...

Thanks for the clarifications about shrimp and tuna, Radek. Googling around, I don’t find the story on Turtle Exclusion Devices to be quite as you tell it either.

My point wasn’t to take a definite position on turtles, but to point out issues at play that cannot simply be decided by saying one opposes protectionism. Apparently, I could have also mentioned additives in gasoline or genetically modified foods.

I agree that each country is more fairly represented in the WTO than is the case in the IMF. I don’t know how even the U.S. representative for the WTO gets chosen.

YouNotSneaky! said...

Well, that source (aside from being old and a straight up advocacy site, NTTAWWT) doesn't contradict my contention either. It says:

"In the United States, the WTO recently overturned a law designed to protect endangered sea turtles from shrimp fishing, which is believed to kill more sea turtles than all other human activities combined. The 1996 US law had prohibited shrimp from being imported from countries that did not use a Turtle Exclusion Device on their shrimp harvesters - an inexpensive device that allowed turtles to escape shrimp nets. Four Asian countries challenged the law as an unfair trade practice and with WTO support forced the US to back down, weaken its requirements and thereby jeopardize an endangered species in the process."

It just commits the lie of omission. I'm pretty sure that the whole point of the dispute was that the law discriminated against Asian countries and privilaged Latin American shrimp producers, which is the part that is left out. It's been awhile since I looked into this so I'm not 100% certain but it makes sense, given that the basis for most disputes is the "Most Favored Nation" clause on non-discrimination. Also, I believe Paul Krugman had an essay on this, but it's been awhile.

I believe the US WTO representative is the US Trade Representative, appointed by the President and that it used to be Robert Zoellick. I don't know who it is now.

YouNotSneaky! said...


There's some good reasons to hate on the IMF (both right wing and left wing) and to some extent on the WB (though they've been bending over backwards in the past 10 years of so to address these criticisms, as folks like Dani Rodrik acknowledge). But the WTO is in a different league and really gets way more crap than it deserves.

YouNotSneaky! said...

To be more specific on the point about right wing criticisms of the IMF above - lots of folks on the right don't care much for the IMF because they think that
1. It creates a moral hazard for poor countries and encourages bad policies by always standing ready to bail'em out.
2. It provides loans at below market rates which essentially amount to "foreign aid" to poor countries and some right wingers don't like foreign aid period.

I tend to think that (1) above is a much more substantial criticism of the IMF then most leftist complaints about conditionality and cookie cutter approaches (though sometimes these do have some merit).

YouNotSneaky! said...

And (sorry for commenting so much) Dani Rodrik has a pretty good article (though I disagree with good chunks of it) in the December issue of JEL on the Washington Consensus:

entitled "Goodbye Washington Consensus, Hello Washington Confusion".

The newest March issue also has a lot of stuff related to this topic but I haven't read through it yet.