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By Philippe Legrain 3 COMMENTS

It’s a good day for Rob Portman and a bad one for the Doha Round. After less than a year in the job and just as the WTO negotiations are reaching a crucial juncture, America’s top trade negotiator has been promoted to run the White House’s budget office. It is understandable that President Bush has turned to a long-time friend and politically savvy former Congressman in his hour of need. But it augurs badly for the Doha Round, since it was precisely because of those qualities that Portman was appointed to clinch (and sell) a deal.

Clearly, trade is no longer a top priority for the embattled president. Portman’s
replacement, his former deputy Susan Schwab, is certainly a trade
expert, but she does not have the same clout and connections. Much as
Charlene Barshefsky found when she replaced Mickey Kantor, Clinton’s
first USTR, Schwab may find it hard to get the president’s ear.  A Doha
deal can still be done, but today’s news has not made the task any

Posted 18 Apr 2006 in Blog
  1. Paul Harper says:

    More of a question following on from your oft repeated assertions on the benefits of so called free trade/liberalisation in the World Business Review programme 22/04/06. Can you explain why you repeated the tired old myth that countries such as Korea, China and India have seen economic growth surge forward as a result of each stage of liberlisation? You know as well as I that the key common characteristic of these countries, just as with early industrialising countries, has been the ability to exercise sovereign controls over markets in goods, finance and services and to ‘liberalise’, or indeed regulate to the extent that they choose and not through the coercion exercised through the multilateral financial and trade institutions or geopolitics? After all the most ‘open’ economies in the world are to be found in sub saharan Africa, particularly during the last 25 years when the concommitant impoverishment of their peoples is only too clear to see

  2. Philippe Legrain says:

    It’s not a myth that trade liberalisation leads to faster economic growth, as the examples of Korea, China and India illustrate.
    There is a mountain of evidence to support the belief that freeing trade promotes economic growth in developing countries. Studies of nine countries – Chile, Colombia, Egypt, Ghana, India, Israel, Korea, the Philippines, and Turkey – directed by Anne Krueger and Jagdish Bhagwati for the National Bureau of Economic Research in the late 1970s showed that liberalising trade led to faster economic growth. These findings were confirmed by studies of nineteen countries – Argentina, Brazil, Chile, Columbia, Greece, Indonesia, Israel, Korea, New Zealand, Pakistan, Peru, the Philippines, Portugal, Singapore, Spain, Sri Lanka, Turkey, Uruguay, and Yugoslavia – over four decades conducted in the early 1990s by Demetris Papageorgiou, Michael Michaely, and Armeane Choksi of the World Bank.
    More recently, and conclusively, Romain Wacziarg and Karen Horn Welch of Stanford University have found that between 1950 and 1998 “countries that have liberalised their trade regimes have experienced, on average, increases in their annual rates of growth on the order of 1.5 percentage points compared to pre-liberalisation times.”
    You also set up a straw man: “sovereign control good, coercion bad.” Sovereignty may be a good thing in itself, but it doesn’t always lead to good economic policies, eg, Zimbabwe. Coercion may be a bad thing in itself, but it may sometimes lead to good policies, eg, the economic laws imposed on West Germany after the Second World War. In any case, neither control nor coercion can explain why China’s growth suddenly took off in the 1980s and India’s did more recently; liberalisation can. It is also wrong to say that the WTO forces countries to liberalise: they agree to do so willingly, because they believe it is in their interest. And it is simply incorrect to say that African economies are among the most open in the world: they typically have very high tariff barriers.
    The BBC World Service radio discussion is now available here.

  3. Matthew says:

    It seems to me that Paul (above) raises a reasonable point. Personally, I agree with your basic theory, but I do wonder whether you — and many others (for example, most recently Tim Harford in the Undercover Economist) — have based your arguments on the actual economic position which allowed for the tremendous rise of the Asian economies.
    It is simply not the case that the enormous growth of the Asia tigers is evidence of the efficacy of free trade because most of those economies were protected behind trade barriers and currency controls for most of their development and still are.
    In fact, what those successes demonstrate is the efficacy of taking advantage of others’ economic openesss: they have mostly prospered by developing export industries that sold to the developed world while (both openly and otherwise) protecting their own companies/economies.
    Yes, they have liberalised such things as inward investment and allowed foreigners to set up joint-venture manufacturing businesses, etc, but most of the stuff that is made is exported to the west and the “local champions” remain protected — and, in fact, benefit from learning foreign expertise.
    Despite what the anti-globalisers say, that is all clearly to the benefit of both the locals working in those factories and consumers/investors in the west, but it does not mean that those Asian economies are in real way open.
    In fact, most Asian economies are protected by a variety of means: controls on currency convertibility, restrictions on what foreigners can own, high tarrifs, government ownership of swathes of local economies (and all that that entails in terms of cheap loans, etc), powerful local cartels, preferrential regulatory environment for locals, etc.
    The list of Asian countries that have benefitted from such practices (and still do) encompases nearly all of the economies that people cite as examples of why all economies should become more open: China, South Korea, Japan, Malaysia and Singapore.
    Korea is the best example of this. It turned itself into a major world economy by developing extremely efficient industries with no possibility of foreign competition at home thanks to a combination of economic and cultural/nationalistic barriers. So it’s laughable when peope cite Korea as proof of the value of economic openess.
    Most of the other successful Asian countries have followed that example to a greater or lesser degree.
    In fact, those countries that did genuinely remove most of their barriers — in particular, Thailand and Indonesia — were the ones that suffered most in the aftermath of the Asian crisis and took longest to recover.
    In Asia, only Hong Kong (where I’ve lived for nearly 20 years) is a genuinely free economy in terms of tarrifs/trade barriers (though the blatant and entirely legal cartels and other anti-competitive practices are another story).
    My point is not that your theories are wrong — on balance, I agree with you — but that when you (and others) cite the development of Asian economies as evidence of the efficacy of increased trade/lower tarrifs I think you’re basing your arguments on something that didn’t actually take place — or at least only partially took place: on the Asian side those barriers and tarrifs were high and Asian companies were highly protected.
    Clearly, this is particularly important because of the implications it has for what African countries should do.

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