FT.com
 
. All times are London time.
 

Home Global | UK | US
World
Business
Markets
Industries
Investing data & tools
Lex
Comment & analysis
Editorial comment
Columnists
Discussion & polls
Letters
Analysis
Comment
Inside track
People in the news
Culture & sports
In today's FT
Site services
FT reports
Creative Business
FTfm
FT-IT
World reports
Special reports

Other FT sites
FT Investor
FT Yourmoney
FT Fund Ratings
FT CareerPoint


 Company finder
Hoovers
Get free company, financial
and competitor information.
 
 Enter company name
 or ticker.
 For further company
 information click here.

Partner sites
   Business.com
 Hoover's Online
 Les Echos
 FT Deutschland
 Recoletos
 Vedomosti
 CBS MarketWatch
 Investors Chronicle


Comment & analysis Print article | Email
A free trade club without benefits
By Andrew Rose
Published: November 7 2002 20:27 | Last Updated: November 7 2002 20:27

Economists disagree about a lot - but not everything. Almost all of us think that international trade should be free. Accordingly, the multilateral organisation responsible for liberalising trade, the World Trade Organisation, is the most popular international institution inside the profession, certainly compared with its obvious rivals, the International Monetary Fund and the World Bank. This makes much of the furore over the WTO unfathomable to most of us. But should we and the protesters really care about the WTO at all? Do we really know that the WTO, together with its predecessor the General Agreement on Tariffs and Trade, has promoted trade?

Maybe not. While theory, casual empiricism and strong statements abound, there is, to my knowledge, no compelling empirical evidence showing that the WTO has in fact encouraged trade. My latest research shows that WTO membership is not associated with enhanced trade, once standard factors have been taken into account. To be more precise, the trade patterns of countries acceding or belonging to the WTO do not differ significantly from those of non-members.

This finding is important, for two reasons. First, the mandate of the WTO is trade liberalisation. Second, the system is widely considered to be a success. While some might disagree that trade should be freed by the multilateral system, it is hard to find dissent from the view that trade has been liberalised by the system.

Not all multilateral trade institutions have been ineffectual. The Generalised System of Preferences extended from the north to developing countries approximately doubles trade. Thus we know that we have the data and methodology to measure the effects.

I have compared trade patterns for countries in the Gatt/WTO with those outside the system, taking other factors into account and using variation across countries (since not all countries are in the system) and time (since membership has grown).

Twiddling with the model, the data set, or the methodology does not affect the central conclusion: Gatt/WTO membership has economically and statistically tiny effects on trade. And there is no evidence that entry into the Gatt/WTO has had an effect on the ratio of aggregate trade to gross domestic product. The reason for this is that membership is not significantly correlated with measures of trade policy. In other words, there is almost no evidence that belonging to the Gatt/WTO has liberalised trade policy. It is therefore unsurprising that the system has not stimulated trade.

Take one example. In 1987, Indian tariff revenues reached 53 per cent of import values. India had been a founding member of the Gatt in 1948. Yet Indian tariff revenues have never fallen below 20 per cent of Indian imports, at least during the 25 years for which we have data.

Comparable tariff data exist for 91 countries in 1987. At that time 89 countries had lower tariffs than India. Twenty-three of those countries were not members of the Gatt but had tariff rates averaging 15.7 per cent. Gatt members collected tariffs averaging 11.4 per cent (a figure that is statistically indistinguishable from that of outsiders). Average tariff rates have been insignificantly different for members and non-members for all years since 1974.

Perhaps the Gatt has not had much of an effect on trade but the WTO will. Time will tell. In the meantime we should all question the assumption that the WTO has in fact liberalised trade or is in the process of doing so.

The writer is professor of economics at Berkeley's Haas School of Business and author of Do We Really Know that the WTO Increases Trade?

http://www.cepr.org/

email this EMAIL THIS print this PRINT THIS most popular MOST POPULAR  
Related stories
Control of Congress  Nov 07 2002 20:03 Requires subscription
Philip Stephens: A final chance for Saddam  Nov 07 2002 20:08 Requires subscription
The emerging Democratic minority  Nov 07 2002 20:14
Requires subscription = requires subscription to FT.com
Search & quotes

NewsQuotes
  • Power searchRequires subscription
  • My portfolio

  • Editor's choice
      WTO urged to scrap tariffs on non-farm goods Requires subscription

    WTO minnows cry foul on mediation Requires subscription

    WTO trade disputes and trade barriers Requires subscription

    Bid to salvage WTO membership bid by Russia Requires subscription

    Amity Shlaes: Europe's unpalatable attitude Requires subscription

    Related stories
      Control of CongressRequires subscription

    Philip Stephens: A final chance for SaddamRequires subscription

    The emerging Democratic minority

    News by email
       Signup Central

    Useful tools
       Personal office
     Business research
     Market research
     Download news ticker
     Currency converter


      Home World | Business | Markets | Industries | Investing | Lex | Comment | Surveys | Culture & sports | Today's FT Contact us | Help