What's Right with GATT

...For along with his enormously successful Protectionism, published two years ago, The World Trading System at Risk provides arguably the most eloquent, coherent, nuanced, and original case for the GATT'S open, multilateral trade objectives...

...He may be unduly optimistic in thinking regionalism can be tamed to be compatible with, and conducive to, GATT-wide liberalization...

...Bhagwati's vast knowledge of theory, history, law, institutions, and ideology is served lightly and judiciously...

...The bulk of his new book refutes the critics of the GATT'sprinciples...

...Reviewed by Paul Streeten Professor of economics, Boston University...

...Long live GATT...

...Bhagwati is of course aware of the confusion and of the various misunderstandings it has produced- Here, though, he focuses on the key issue at present, the role of regionalism...

...Yet if the contributions promised for the Gulf War are paid promptly, the shortfall might turn into a surplus by mid-1991...

...Bhagwati offers interesting suggestions for concluding the Uruguay Round without having TRIPS and TRIMS occupy center stage...

...Another reason, or excuse, for the legislation is the U.S.' significant current account deficit...

...Moreover, econometric investigations have failed to produce compelling empirical evidence that the absence of protection inhibits thecreation of new knowhow...

...The dramatic upsurge in Japan's imports of manufactures over the past five years—due less to a change in its trade policies than to the U.S...

...That, however, would entail the weak threatening the strong: The improbability of such an eventuality clearly illustrates what is wrong with aggressive unilateralism...

...3. Multilateralism—the extension of negotiated trade rules without discrimination to all members of the organization—is generally to be preferred to discriminatory arrangements...

...Nevertheless, many deny the legitimacy of flexible rules for GATT members and oppose, for example, continuing the Special and Differential Treatment that has been extended to developing countries...

...Aggressive Unilateralism: America's 301 Trade Policy and the World Trading System Jagdish Bhagwati and Hugh T. Patrick, editors Michigan...

...268 pp...

...The 1988 legislation is a move from the exchange system of mutual concessions to the employment of threats...

...the other is the contention that its scope is too narrow and hence obsolete...

...the essays by Robert Hudec, an expert on GATT law, and by John McMillan, a microeconomist and game theorist, are especially good...

...39.50...

...Bhagwati believes the General Agreement on Tariffs and Trade, which defines the postwar trading regime much theway the International Monetary Fund oversees the world exchange rate system, faces two distinct threats: One is the view that its underlying principles are no longer appropriate...

...Bhagwati supplies several explanations...

...No wonder the developing nations are uneasy about the proposed expansion of the GATT...

...Before Sir Dennis, the Cambridge philosopher CD...

...After all, discriminating taste is regarded as a virtue, and discrimination in the choice of one's partners is the opposite of promiscuity...

...But, si vis pacem, para bellum can be a recipe for war...

...actively seeking to step up exports there—underlines the plausibility of Bhagwati's thesis...

...The question that has thus emerged is whether the world economy will break up into trading groups, or whether universal free trade will result from the groups negotiating with one another...

...In short, the GATT is a "fix-rule" or "rulesbased" system, the antithesis of a "managed trade" or "results oriented" system...

...That brings us to the third principle of the GATT, a preference rather than a demand for nondiscriminatory multilateralism—and back to The World Trading System at Risk...

...and that trade with any country having different institutions and policies than ours cannot be "fair," eliminating the possibility of gainful, rules-based free exchange...

...consultant, United Nations Development Program "Gatt is dead" proclaimed Lester Thurow in Davos, echoing Nietzsche (who for a time lived in nearby Sils-Maria...

...But the GATT'S Article XXIV permits this type of bias as long as the regional agreement is total—i.e...

...It is odd to observe what violent negative passions the word "discrimination" evokes even in Keynes, whose characteristically volatile and inconsistent views are quoted in their eloquence by Bhagwati...

...replies Jagdish Bhagwati, echoing an old British imperial cry...

...Bhagwati, cutting through the fog of economic obfuscation and political cant, contends that the case for TRIPS and TRIMS is weak...

...The competition for survival in a harsh world seems to keep people trying to move ahead of the pack no matter what...

...Aggressive unilateralism, wherethestrongthreaten the weak with retaliation to secure unrequited concessions or to impose new disciplines in their interest, is to be avoided as the rule of the jungle rather than the rule of law...

...Adding the phrase "trade related" to these tangential issues made them TRIPS (trade related intellectual property) and TRIMS (trade related investment measures), happy acronyms that lobbies have used to enter the GATT arena...

...The author writes with particular power and wit in challenging the notion of a fundamentally resistant Japan—held by culturalists such as James Fallows, and by a handful of economists who assert that the nation's markets are inaccessible...

...The case against aggressive unilateralism, as typified by theU.S.' recent uses of Section 301 provisions of the 1988 Omnibus Trade and Competitiveness Act, is developed at greater length in Aggressive Unilateralism, edited by Bhagwati and Hugh T. Patrick, a prominent American scholar on Japan...

...The U.S.-led negotiating position has been that the GATT should be expanded to include not merely services and agriculture (which belong in it as much as manufactures do), but intellectual property rights and restraints on host-country regulation of multinationals...

...Neither friends nor foes of the system can afford to ignore this book...

...Broad defined "silly in the technical sense" as denying the possibility or reality of something we all know to be true...

...Economic theory shows that even when such protection increases global efficiency, it is likely to harm countries that are exclusively users of the fruits of technical progress...

...Bhagwati reminds the economists that if Japan is under-importing, this may be the result of a self-fulfilling and historically determined perception of impenetrability (Tokyo long practiced a policy of "controlled openness"), one that persists despite the fact that in the last decade Japanese markets have opened substantially...

...Only time will tell...

...No one can accuse Bhagwati of that affliction...

...2. Markets are to be opened, and new disciplines established, by mutual negotiation and balanced concessions...

...Bhagwati could have further pointed out that whereas all nations stand to gain from engaging in voluntary trade (so that besides improving world efficiency, it could be said that the GATT benefits everyone without requiring compensatory transfers), the same is not true where intellectual property protection is concerned...

...He writes that "in making policy, scientific ingenuity must blend with good sense...

...It is hard to understand how the United States could turn to so crude a weapon and violate its traditional commitment to the GATT as well as its own sense of fairness...

...But the politics that put these issues onto the agenda, and that he illuminates so well, are bound to dominate the Round's outcome...

...He shows convincingly how managed trade is driven by two erroneous assumptions: that Japan cannot play by rules, so we must trade with it in controlled quantities...

...At the outset we are given the GATT'S three main doctrines: 1. Nations should trade by setting regulations, with the chips falling where they may, instead of deciding directly on who will trade what and for how much...

...The rest maintains that the latest series of multilateral trade negotiations, the Uruguay Round, was initiated precisely to broaden and adapt the GATT to the needs of the times...

...In other words, the problem could be more on the supply side (ours) than on the demand side (theirs...

...This book contains some notable analyses of the issue at hand...

...Sir Dennis Robertson, the great Cambridge economist, once aptly described a brilliant young economist who had wandered into the policy arena as 'silly-clever.' Silliness from clever economists does affect the debate on GATT principles...

...Were others to follow the American lead, they would take turns firing 301 salvos back at Washington...

...By definition, regional trade agreements like the European Community and the U.S.-Canada Free Trade Agreement fall short of GATT-wide trade liberalization...

...if it establishes a free trade area or a customs union with all internal import and export barriers removed...

...Indeed, The World Trading System at Risk is a high-spirited exhortation to keep it alive...

...The idea that it is not stems from a confusion between uniformity (the same rules for everybody) and universality (different rules according to different situations: remember the tax code...

...In fact, discrimination is entirely consistent with a rules-based trading approach...

...Pursuing unrequited concessions, he tells us, is considered equitable because of a common (albeit false) belief inside the Belt way that America earlier gave away a lot of trade advantages out of altruism and it is now time to collect...

...For instance, nations legitimately have differing estimates of the economic efficiency of intellectual property protection, and of its optimal design and duration...

...To bring the Round to a successful conclusion, he proposes an alternative agenda that is an ingenious blend of economic theory and political realism...

...Although Bhagwati argues cogently in support of all three points, he directs most of his analytical fire at those who offend the first by favoring managed trade, and the second by advocating aggressive unilateralism...

...The critical factor today, Bhagwati correctly notes, is that the U.S., long resistant to using Article XXIV and opting instead for GATT-wide trade reform, has changed its stand, hoping to walk on both legs...

...The author treads on yet more treacherous ground in his discussion of the Uruguay Round...

...Bhagwati starts off the collection with a splendid "Overview" that demonstrates the folly, as well as the illegality, of the American 301 policy inits attempt todislodge, "if necessary by retaliation, the trading practices designated [unilaterally] by the United States as unacceptable to it...

...Bhagwati offers some novel ideas to help regionalism becomea "building, rather than a stumbling, block" to free trade...