Free Trade, ‘Fairness’ and the New Protectionism

  • Jagdish Bhagwati


The Multilateral Trade Negotiations (MTN) under the umbrella of the Uruguay Round were concluded in April 1994, after over seven years of tortuous history during which they came close to death by neglect or murder by hostile intent. The GATT was declared impotent or dead; the Uruguay Round was treated as a script with all talk and no action.


Direct Foreign Investment Fair Trade Free Trade World Trade Organisation Real Wage 
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  1. 2.
    Peter Sutherland has suggested that the introduction of biennial Ministerial Conferences at the WTO will mean that multilateral negotiations on trade issues ‘will become a permanent event’; this need not, however, preclude a formal Round with a set agenda. (See John Whalley, ‘The WTO and the Future of the Trading System’, paper presented to the Conference in Honour of Jagdish Bhagwati, University of Lancaster, November 1994.)Google Scholar
  2. 5.
    These different economic-philosophical positions are discussed in depth in Jagdish Bhagwati (ed.), The New International Economic Order: The North-South Debate, MIT Press, Cambridge, Mass., 1977, Ch. 1.Google Scholar
  3. 8.
    See, for example, Jagdish Bhagwati, Protectionism, Bertil Ohlin Lectures, MIT Press, Cambridge, Mass., 1988, on the question of free trade,Google Scholar
  4. 8a.
    and Bhagwati, The World Trading System at Risk, Harry Johnson Lecture, Princeton University Press, Princeton, NJ, 1991, on the issue of multilateralism.CrossRefGoogle Scholar
  5. 9.
    The evidence in support of this phenomenon in the 1980s, both for the United States and for several other countries, is reviewed and synthesised nicely by Marvin Kosters in Chapter I of Jagdish Bhagwati and Marvin Kosters (eds), Trade and Wages: Leveling Wages Down?, American Enterprise Institute, Washington, DC, 1994.Google Scholar
  6. 10.
    Robert Lawrence, ‘Trade, Multinationals, & Labor’, Cambridge, Mass.: National Bureau of Economic Research, Working Paper No. 4836, August 1994.CrossRefGoogle Scholar
  7. 12.
    See Jagdish Bhagwati, ‘Free Traders and Free Immigrationists: Strangers or Friends?’, Russell Sage Foundation, New York, Working Paper No. 20, 1991.Google Scholar
  8. 13.
    This empirical work by Robert Lawrence and Matthew Slaughter is reviewed in Jagdish Bhagwati and Vivek Dehejia, ‘Freer Trade and Wages of the Unskilled — Is Marx Striking Again?’, in Bhagwati and Kosters, op.cit. A subsequent empirical study by Jeffrey Sachs and Howard Schatz, ‘Trade and Jobs in US Manufacturing’, in Brookings Papers, 1994, claims to overturn the Lawrence-Slaughter findings by omitting computers (a procedure that is debatable at best). Even then the coefficient with the changed sign is both small and statistically insignificant. So, while Noam Chomsky has educated us that two negatives add up to a positive in every language, it is wrong to claim that the two negatives of a statistically insignificant and small parameter of the required sign add up to a positive support for the thesis that trade has been depressing the real wages of the unskilled!Google Scholar
  9. 14.
    The work of Adrian Wood, North-South Trade, Employment and Inequality, Clarendon Press, Oxford, 1994, argues in support of the trade-hurting-real-wages-of-the-unskilled thesis but his arguments have been effectively criticised by Lawrence, op.cit. See also a review of the theory and evidence in Jagdish Bhagwati, ‘Trade and Wages: Choosing Among Alternative Explanations’, Federal Reserve Bank of New York Economic Policy Review, January 1995.Google Scholar
  10. 15.
    While I distinguish among ‘North-South’ and ‘North-North’ issues here, let me stress again that these descriptions are only broadly true, and reflect the principal historical origins of the issues; the issues are universal and now cut across nations in both groups. Thus, for example, the demands of eco-dumping duties (discussed below, pp. 192–6) have the potential of creating frictions among OECD countries, and not just between them and the countries of the South. Nor does my use of these shorthand labels imply that there are coalitions of the North and of the South to that effect on the issues being discussed. I was among the first to discount the enduring effectiveness of a coalition of the South when, in the flush of the OPEC success, so-called Global Negotiations were demanded by the G-77 countries at the United Nations: the developing countries were unsuccessful with these demands. Indeed, they have been substantially fragmented politically since then, as discussed in my ‘Dependence and Interdependence: Developing Countries in the World Economy’, Ernest Sturc Memorial Lecture, Johns Hopkins University, School for Advanced International Studies, Washington, DC, 1987; reprinted in Jagdish Bhagwati, Political Economy and International Economics, ed. Douglas Irwin, MIT Press, Cambridge, Mass., 1991.Google Scholar
  11. 16.
    John Wilson, in ‘Capital Mobility and Environmental Standards: Is There a Theoretical Basis for a Race to the Bottom?’, mimeo, September 1994, demonstrates that there can even be a ‘race to the top’. This possibility is disregarded in the analysis above, as in the public discourse.Google Scholar
  12. 16a.
    The Wilson paper appears in Jagdish Bhagwati and Robert Hudec (eds), Harmonisation and Fair Trade: Prerequisites for Free Trade?, MIT Press, Cambridge, Mass., 2 vols, 1996.Google Scholar
  13. 18.
    See Jagdish Bhagwati and T. N. Srinivasan, ‘Trade and the Environment: Does Environmental Diversity Detract from the Case for Free Trade?’, July 1994, in Bhagwati and Hudec, op.cit. Their analysis is based on Levinson, op.cit.Google Scholar

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© The Wincott Foundation 1996

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  • Jagdish Bhagwati

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