Concluding remarks

When it comes to 20th century trade and trade issues, the WTO is in rude health.

• The basic WTO rules are almost universal respected.

• The decisions of the WTO’s court are almost universally accepted.

• Nations – even big, powerful nations like Russia – seem willing to pay a high politi-cal price to join the organisation.

• The global crisis created protectionist pressures, but most of the new protection conformed to the letter of the WTO law (Evenett 2011).

In short, the WTO is alive and well when it comes to the types of trade and trade barriers it was designed to govern, i.e. 20th century trade (the sale of goods made in factories in one nation to customers in another).

Where the WTO’s future seems cloudy is on the 21st century trade front. The demands for new rules and disciplines governing the trade-investment-services-IP nexus are being formulated outside the WTO. Developing nations are rushing to unilaterally lower their tariffs (especially on intermediate goods) and unilaterally reduce behind-the-border barriers to the trade-investment-services-IP nexus. All of this has markedly eroded the WTO centrality in the global trade system.

The Future of the WTO

The implication of this is clear. The WTO’s future will either be to stay on the 20th century side-track on to which it has been shunted, or to engage constructively and creatively in the new range of disciplines necessary to underpin 21st century trade.

References

Ando, Mitsuyo and Fukunari Kimura (2005), “The Formation of International Production and Distribution Networks in East Asia,” in T. Ito and A. Rose (eds) International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pp 177-216.

Baldwin, Richard (2011), “21st Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules”, CEPR Policy Insight No. 56, London:

CEPR.

Clemens, Michael A. and Jeffrey G. Williamson (2004), “Why Did the Tariff-Growth Correlation Change after 1950?“, Journal of Economic Growth 9(1), 5-46.

Evenett, Simon (2011), “Did the WTO Restrain Protectionism During The Recent Systemic Crisis?”, www.globaltradealert.org.

Federal Reserve Bank of Dallas (2002), “Maquiladora Industry: Past, Present and Future”, Issue 2.

Feenstra, Robert and Gordon Hanson (1997), “Foreign direct investment and relative wages: Evidence from Mexico’s maquiladoras,” Journal of International Economics 42(3-4), 371-393.

Gaulier, Guillaume, Francoise Lemoine and Deniz Unal-Kesenci (2007), “China’s emergence and the reorganisation of trade flows in Asia,” China Economic Review 18(3), 209-243.

Haberler, Gottfried (1958), “Trends in International Trade, Report of a Panel of Experts”, Geneva: GATT Secretariat.

Kimura, Fukunari, Yuya Takahashi, and Kazunobu Hayakawa (2007), “Fragmentation and parts and components trade: Comparison between East Asia and Europe”, The North American Journal of Economics and Finance 18(1), 23-40.

Ostry, Sylvia (1999), “The Future of the WTO”, Brookings Trade Forum, edited by Dani Rodrik and Susan Collins, Washington, DC: Brookings Institution.

Athukorala, Prema-chandra (2006), “Multinational Production Networks and the New Geo-economic Division of Labour in the Pacific Rim,” Departmental Working Papers 2006-09, Australian National University, Arndt-Corden Department of Economics.

Rodrik, Dani (2000), “How Far Will International Economic Integration Go?” Journal of Economic Perspectives 14(1), 177–186.

Rodrik, Dani (2002), “Feasible Globalizations”, NBER Working Paper 9129.

The Future of the WTO

About the author

Richard Edward Baldwin is Professor of International Economics at the Graduate Institute, Geneva since 1991, Policy Director of CEPR since 2006, and Editor-in-Chief of Vox since he founded it in June 2007. He was Co-managing Editor of the journal Economic Policy from 2000 to 2005, and Programme Director of CEPR’s International Trade programme from 1991 to 2001. Before that he was a Senior Staff Economist for the President’s Council of Economic Advisors in the Bush Administration (1990-1991), on leave from Columbia University Business School where he was Associate Professor.

He did his PhD in economics at MIT with Paul Krugman. He was visiting professor at MIT in 2002/03 and has taught at universities in Italy, Germany and Norway. He has also worked as consultant for the numerous governments, the European Commission, OECD, World Bank, EFTA, and USAID. The author of numerous books and articles, his research interests include international trade, globalisation, regionalism, and European integration. He is a CEPR Research Fellow.

To policymakers in most nations, there is a world of difference between trade and migration policies. The theoretical literature in economics, by contrast, has focused on their similarities (Mundell 1957). In standard trade models, liberalising trade in goods and removing barriers to labour (or capital) mobility is beneficial for world welfare – when goods move freely across borders, countries can gain by exporting what they produce more efficiently and importing what other nations produce at a lower price.

Likewise, all countries can gain if migration barriers are removed between them, so that workers from low-pay nations can move and earn higher wages, and employers in the high-wage country can hire foreign workers at a lower cost.

More specifically, the theory argues that if the only difference between countries lies in their relative labour abundance, commodity trade and labour mobility are substitutes (Razin and Sadka 1997). Freer trade should lead poorer countries to specialise in the production of labour-intensive goods. In turn, this should lead to a rise in wages of unskilled workers, decreasing their incentives to move abroad. Trade liberalisation should then decrease the need for labour migration. This argument was often raised during the negotiations of the North American Free Trade Agreement (NAFTA).

Policymakers argued that the agreement would allow Mexico to export “goods and not people” (Fernández-Kelly and Massey 2007).

Paola Conconi, Giovanni Facchini, Max F Steinhardt, and Maurizio Zanardi

Université Libre de Bruxelles (ECARES) and CEPR; Erasmus University Rotterdam, Universita’ degli Studi di Milano ,and CEPR; Hamburg Institute for International Economics; Université Libre de Bruxelles (ECARES)