About a month ago, I came across a very interesting article1 in the Guardian about the latest developments in international commercial law, specifically about the World Trade Organisation (WTO) in this brave new world of economic depression.
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| Unemployed men during the great depression (circa 1935) |
In the article, Pascal Lamy2, WTO's director-general, commented on the current trend of governments to employ protectionism regulations, regarding their export-import ratios and the employment of tariffs3, as means of protection against the current global economic crisis. He draws similarities of this trend with the big recession of the 1930s4 where both devaluation of currency and the erection of import tariffs was employed to boost the domestic economies, but with a detrimental effect to foreign markets. He furthermore notes the current 'currency' war between the United States and China5(one of the few economic giants not to be part of WTO).
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| The big deal can be described as a form of state protectionism though as it turned out, helped the people more by providing employment than actualy helping the economy |
WTO, GATT and protectionism
So why is the director-general condemning the protectionism policies of the 30's? The answer is found within the essence of WTO and GATT. Fifty years ago when the GATT was drafted, it had a single aim. The progressive abolition of tariffs in the international commercial market. So essentially here we have two conflicting policies; one being the states trying to raise their shambled economies back on their feet and on the other hand the international commercial law framework based regulated by GATT and the WTO based on the economical liberal policies of Friedman and Hayek6 where state intervention, the employment of tariffs and in our current situation currency manipulation7 creates an uneven field. Thus turning the international market an unfriendly place to invest.
Even though I am not a proponent(on the contrary it is my belief that the current crisis is a product of neoliberal economic policies) of the free market I concur that the director-general does have a point; the world economy is quite different in comparison to the 30s, with economic globalization being a central aspect of it. Thus there is the possibility of a domino effect that could bring the whole world to its knees, if the major economies choose to adapt a protectionism policy that favours only themselves. Also worth of notice is the effect that this will have in the recognition of WTO as an international organisation regulating international trade, with the result being the disdain of both the organisation and the system based on GATT (i.e. creating a legal anarchy in the field of international commercial law). As Keynes8 accurately stated capital must flow9 and in today's globalised economy, the statement applies more than ever.
ps. once again I stress my belief that a free market without any regulation is not the answer to either the current crisis or to solve more fundamental problems like unemployment or socioeconomic equity...and anyway in both a free market and a protectionism regime it is still the big companies that profit while most of the citizens have to bear in both situations the weight of their mistakes.
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- http://www.guardian.co.uk/business/2010/oct/14/pascal-lamy-wto-1930s-protectionism
- http://www.wto.org/english/thewto_e/dg_e/dg_e.htmTariff
- http://scm.ncsu.edu/public/trade/4tariffs.html
- http://www.ingrimayne.com/econ/EconomicCatastrophe/GreatDepression.htm
- http://247wallst.com/2010/03/21/us-currency-wars-with-china-looms/
- M. Friedman F. Hayek
- http://blogs.forbes.com/streettalk/2010/04/06/currency-manipulation/
- http://en.wikipedia.org/wiki/John_Maynard_Keynes
- http://www.questia.com/googleScholar.qst;jsessionid=18FFF04566A0912620F50E0CF9A7DEAA.inst2_1b?docId=5000322441
Further Reading
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