The World Trade Organization (WTO) is failing to deliver the trade liberalisation desperately needed to bring prosperity to developing countries, according to a new study released today by the Institute of Economic Affairs*. The WTO is hamstrung by a cumbersome negotiating model and the influence of vocal protectionist lobbies who oppose free markets. At the same time, increasingly popular regional free-trade agreements often create as many barriers as they remove by erecting new obstacles to trade with countries outside the blocs concerned.
In the context of policy paralysis at the WTO, the author, LSE trade expert Dr Razeen Sally**, argues that governments must take back the initiative from supranational institutions. The priority must be unilateral liberalisation removing trade barriers to benefit domestic consumers rather than waiting for tortuous international negotiations to be resolved. Governments can also help maximise the benefits of free trade by liberalising their economies and strengthening key institutions.
Asian economies have led the way in this regard. Those Asian countries that have successfully integrated into the world economy have done so through unilateral liberalisation. China has reduced its tariffs from an average of 65% twenty years ago to just 10% today with dramatic consequences for GDP growth.
Yet despite the overwhelming evidence that free trade boosts economic growth, protectionism remains strong both in developing countries and the West. In particular, both the EU and the USA need to tackle continuing high barriers to agricultural trade as well as implicit barriers such as environmental regulations and rules of origin, while at the same time ensuring that a stable international order is maintained. Indeed, providing leadership in liberalising trade is vital if the West is to maintain general international support for free trade and free markets.