I n t h I s c h a p t e r y o u w I l L

F r e e Tr a d e w i t h o u t Tr e a t i e s
B
Y
J
AGDISH
B
HAGWATI
President Clinton and 17 other Asian-
Pacific leaders are meeting today in
Vancouver. Rather than the convivial
photo-op they’d planned, however, they
must contend with worrisome trade
news. A spate of Asian currency devalu-
ations has raised the specter of renewed
protectionism around the world. South
America’s Mercosur trade bloc, led by
Brazil, just raised its tariffs some 30 per-
cent. And Congress turned its back on
the president and refused to approve
fast-track authority for him to negotiate
further free-trade accords. [
Author’s
note: Fast-track authority would allow
the president to negotiate trade deals
that Congress would consider without
the ability to attach amendments.]
In light of all this dismaying news,
what are the prospects for free trade? Is
the future bleak, or will the postwar trend
of dramatic liberalization continue to ac-
celerate despite these setbacks?
The immediate prospects for more
U.S.-led multilateral trade accords do in-
deed look grim after the defeat of fast-
track. But that doesn’t mean that free
trade itself is on the ropes. A large por-
tion of the world’s trade liberalization in
the last quarter-century has been 
unilat-
eral. Those countries that lower trade
barriers of their own accord not only
profit themselves, but also often induce
the laggards to match their example. The
most potent force for the worldwide
freeing of trade, then, is unilateral U.S.
action. If the United States continues to
do away with tariffs and trade barriers,
other countries will follow suit—fast-
track or no fast-track.
To be sure, the General Agreement
on Tariffs and Trade, the World Trade Or-
ganization, and other multilateral tariff re-
ductions have greatly contributed to
global wealth. The WTO has become the
international institution for setting the
“rules” on public and private practices
that affect competition among trading
nations. Much still needs to be done in
that mode, particularly on agriculture tar-
iffs, which remain too high around the
world. A future U.S. president, if not Mr.
Clinton, will certainly need fast-track au-
thority if another multilateral effort, such
as the “millennium round” called for by
Sir Leon Brittan of the European Union,
is to pursue these goals.
But the good news is that even if
organized labor, radical environmental-
ists, and others who fear the global
economy continue to impede fast-track
during Congress’s next session, they
cannot stop the historic freeing of trade
that has been occurring unilaterally
worldwide.
From the 1970s through the 1990s,
Latin America witnessed dramatic lower-
ing of trade barriers unilaterally by Chile,
Bolivia, and Paraguay; and the entire
continent has been moving steadily to-
ward further trade liberalization. Merco-
sur’s recent actions are a setback, but
only a small one—so far.
Latin America’s record has been
bettered by unilateral liberalizers in Asia
and the Pacific. New Zealand began dis-
mantling its substantial trade protection
apparatus in 1985. That effort was driven
by the reformist views of then-Prime
Minister David Lange, who declared, “In
I N T H E N E W S
The Case for
Unilateral Disarmament
in the Trade Wars

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C H A P T E R 9
A P P L I C AT I O N : I N T E R N AT I O N A L T R A D E
1 9 9
The inventor is hailed as a genius. Because steel is used in so many products,
the invention lowers the cost of many goods and allows all Isolandians to enjoy a
higher standard of living. Workers who had previously produced steel do suffer
when their factories close, but eventually they find work in other industries. Some
become farmers and grow the wheat that the inventor turns into steel. Others en-
ter new industries that emerge as a result of higher Isolandian living standards.
Everyone understands that the displacement of these workers is an inevitable part
of progress.
After several years, a newspaper reporter decides to investigate this mysteri-
ous new steel process. She sneaks into the inventor’s factory and learns that the in-
ventor is a fraud. The inventor has not been making steel at all. Instead, he has
the course of about three years we
changed from being a country run like a
Polish shipyard into one that could be in-
ternationally competitive.”
Since the 1980s, Hong Kong’s and
Singapore’s enormous successes as
free traders have served as potent ex-
amples of unilateral market opening, en-
couraging Indonesia, the Philippines,
Thailand, South Korea, and Malaysia to
follow suit. By 1991 even India, which
has been astonishingly autarkic for more
than four decades, had finally learned the
virtue of free trade and had embarked on
a massive lowering of its tariffs and non-
tariff barriers.
In Central and Eastern Europe, the
collapse of communism led to a whole-
sale, unilateral, and nondiscriminatory re-
moval of trade barriers as well. The
French economist Patrick Messerlin has
shown how this happened in three
waves: Czechoslovakia, Poland, and
Hungary liberalized right after the fall of
the Berlin Wall; next came Bulgaria, Ro-
mania, and Slovenia; and finally, the
Baltic countries began unilateral opening
in 1991. . . .
U.S. leadership is crucial to main-
taining the trend toward free trade. Such
ultramodern industries as telecommuni-
cations and financial services gained
their momentum largely from unilateral
openness and deregulation in the United
States. This in turn led to a softening of
protectionist attitudes in the European
Union and Japan.
These developed economies are
now moving steadily in the direction of
openness and competition—not be-
cause any officials in Washington
threaten them with retribution, but be-
cause they’ve seen how U.S. companies
become more competitive once regula-
tion and other trade barriers have fallen.
A Brussels bureaucrat can argue with a
Washington bureaucrat, but he cannot
argue with the markets. Faced with the
prospect of being elbowed out of world
markets by American firms, Japan and
Europe have no option but to follow the
U.S. example, belatedly but surely, in
opening their own markets.
The biggest threat to free trade is
not the loss of fast-track per se, but the
signal it sends that Americans may not
be interested in lowering their trade bar-
riers any further. To counteract this atti-
tude, President Clinton needs to mount
the bully pulpit and explain the case for
free trade—a case that Adam Smith first
made more than 200 years ago, but that
continues to come under attack.
The president, free from the bur-
dens of constituency interests that crip-
ple many in Congress, could argue,
credibly and with much evidence, that
free trade is in the interest of the whole
world, but that, because the U.S. econ-
omy is the most competitive anywhere,
we have the most to gain. The president
could also point to plenty of evidence
that debunks the claims of protection-
ists. The unions may argue that trade
with poor countries depresses our work-
ers’ wages, for example, but in fact the
best evidence shows that such trade has
helped workers by moderating the fall in
their wages from technological changes.
Assuming that the president can
make the case for free trade at home,
the prospects for free trade worldwide
remain bright. The United States doesn’t
need to sign treaties to open markets or,
heaven forbid, issue counterproductive
threats to close our own markets if oth-
ers are less open than we are. We sim-
ply need to offer an example of
openness and deregulation to the rest of
the world. Other countries will see our
success, and seek to emulate it.
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