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Free Trade Agreement

Protectionist forces recently have been in the ascendancy in the United States. Tariffs have been imposed on timber imported from Canada, contrary to the spirit (and perhaps the law) of the North American Free Trade Agreement (NAFTA). Tariffs of up to 30 per cent have been imposed on imported steel, in violation of agreements under the World Trade Organization (WTO). In 2001 alone, the United States launched 79 anti-dumping investigations, with a view to restricting imports from low-cost producers. The proposed anti-dumping measures are a response to price competition from abroad.

They are, in effect, a denial of liberalization and competition, the very foundation of an efficient market economy and are incompatible with an equitable global economy. Finally, last year (2002), the United States succumbed to pressure from the farm lobby and introduced massive subsidies to the agricultural sector. This represented a reversal of previous policy to reduce farm subsidies, makes it difficult to sustain the campaign to reduce farm subsidies in Europe and Japan, and contradicts the US commitment to reduce farm subsidies and open its markets in the round of trade liberalization negotiations initiated in Doha, Qatar in 2001. One has the impression the US government might agree to

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block out sunlight in order to please the domestic energy lobby.

Today our international affairs, including our global economic affairs, are largely governed or regulated either through the unilateral action of the United States, the dominant, self-declared “indispensable” country, or through coercion by a coalition of the rich countries. The alternative to the status quo is a rule-based system of governance, backed by the creation of a body of international law and enforcement mechanisms that ensure that the rule of law does indeed prevail.

The International Monetary Fund is an example of an institution that is too weak to act independently and urgently needs strengthening. It does not have the authority to set the “rules of the game” in international financial affairs and hence can do relatively little to prevent global financial instability. When an outbreak of instability does occur and contagion threatens the entire system, the funds available to the IMF for lending to member countries are far too small. The IMF in recent years has been forced to organize consortia of countries on a case-by-case basis to provide funds to countries which encounter severe financial difficulties.

This undermines the authority of the IMF, gives countries which are members of a consortium the power to determine the volume of assistance and, above all, gives the consortium members considerable political leverage in recipient countries. It is noteworthy that IMF “conditionality” has departed from conventional short-term policies to correct balance of payments problems and now embraces long-term development policies.

Institutional weaknesses also have been a major source of problems. Our institutions of global governance were not designed to manage a closely integrated and rapidly expanding global economic system. We have global markets but we lack global institutions to govern those markets. The institutions that exist are unrepresentative, many people do not have a full voice in them, and they fail to conform to democratic ideals. Moreover, the structure of global governance is full of holes. There is woefully inadequate provision for supplying global public goods and there is no provision for financing them in a regular way. Foreign aid programs are dying and have yet to be replaced by a tax-and-transfer scheme that would benefit the poorest countries and those that are marginalized by the process of globalization.

There is thus much to do and many challenges ahead, but I am confident that slowly but surely we will be able to meet those challenges.


1. Global Backlash: Citizen Initiatives for a Just World Economy, Lanham, Maryland: Rowman and Littlefield, 2002.

2. ” World Bank Research Observer, Vol. 17, No. 1, Spring 2002, Table 1, p. 116

3. Robert Heilbroner, The Worldly Philosophers, New York: Simon and Schuster, 1953, pp. 170-2.

4. World Development Indicators 2001, Washington, D.C.: World Bank, 2001, Table 2.8, p. 70

5. ” Review of Economics and Statistics, Vol. 36, November 1954

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