Trade as “Win-win”

The regulation of the present system of world trade is the responsibility of the WTO (World Trade Organisation). Shortly before the end of WWII, a group of nations met in the small town of Bretton Woods to establish the rules which would govern international trade in the post-war period.

Their decision was formed against the backdrop of classical Ricardian economics, i.e. lowering trade barriers to free up international trade would permit each country to specialise in what it could produce most efficiently compared to other countries (its “comparative advantage”). Production worldwide would be made more efficient; all countries would benefit.

The system seems to have met and even exceeded expectations. Tariffs and other trade barriers have been lowered significantly. World trade has grown rapidly as a result, much faster than the world economy in general. Why then change a system which has been so successful?

A number of factors are behind the recent dissatisfaction.

Slow Decision-Making

WTO decision-making is slow and cumbersome. Agreement on lowering tariff barriers proceeds by way of so called “trade rounds”. These are meetings in which all member countries are represented and all have a vote on the proposed tariff changes. The aim is to get agreement by consent from all members. The WTO specifies that “decisions are made by the membership as a whole”. Furthermore, it acknowledges that “reaching consensus of some 150 countries can be difficult”. This has proved to be the case.

The first attempt to reduce tariffs in 1948 required seven months to secure agreement between all 23 member countries. Since then, the number of member countries has