FINANCIAL TIMES - June 1, 1999

WTO Should Back Open Market Reforms

by Allan Mendelowitz and Peter Morici

Sir, The World Trade Organisation is in crisis. The term of Renato Ruggiero, the director-general, expired on April 30 and members cannot agree on a successor. Support is largely divided along north-south lines between Mike Moore of New Zealand and Supachai Panitchipakdi of Thailand. The impasse exemplifies a widening north-south rift, raising concerns about how contentious issues will be resolved at the third Ministerial Conference in Seattle this autumn.

In Seattle, members will consider how tariffs, foreign investment and agriculture will be addressed in a new round of multilateral negotiations. Already, fall-out from the Asian financial crises is colouring deliberations, with developing countries reeling from International Monetary Fund demands for structural reforms. IMF prescriptions embody the kinds of pro-market disciplines that permeate WTO rules.

Throughout the 50-year history of the General Agreement on Tariffs and Trade and WTO, industrialised countries have acquiesced to developing country demands for special and differential treatment, permitting them to retain higher tariffs, protectionist industrial policies, and aggressive regulation of foreign investment. WTO agreements regulating government policies have afforded developing countries longer phase-in periods or weaker obligations. Sometimes they have not participated at all in concessions.

Consequently, developing countries have been able to maintain almost any trade policy they like, with Latin American nations often pursuing aggressive import substitution and Asian countries typically emulating Japanese export-driven development. The presumption is that special and differential treatment will spend development and growth; however, economic crises in Latin America in the 1980s and the recent Asian contagion debunk this idea.

Protectionism has begotten uncompetitive enterprises and required large subsidies to sustain employment. In turn, imprudent borrowing to finance these policies and the succession of financial crises have visited misery on the middle and working classes in developing countries. Workers in industrial countries also suffer when they must compete with imports made cheap by plunging developing-country currencies.

Special and differential treatment is a failed concept. Industrialised countries should not acquiesce to demands for policies that subvert markets. Rather, they must champion reforms that open markets and not tolerate failed
developing-country protectionism.