All Commentary
Wednesday, January 1, 1992

Book Review: The World Trading System At Risk by Jagdish Bhagwati

Princeton University Press, 41 William Street, Princeton, NJ 08540 • 1991 • 164 pages • $16.95 cloth

The laissez fake wisdom of Adam Smith and David Ricardo (with his profound Law of Comparative Advantage on behalf of free trade) is well reflected here in a work by Jagdish Bhagwati, formerly Arthur Lehman Professor of Economics at Columbia University.

Professor Bhagwati provides an incisive and authorative essay on the current position and future potential of GATT, with special attention to a prominent GATT member, the United States.

GATT is the General Agreement on Tariffs and Trade, founded in 1947, a U.N.-affiliated agency based in Geneva, Switzerland. It is an organization of some 100 member countries aiming at mutual tariff reduction along with removal of non-tariff barriers such as import quotas and exchange controls. Extended GATT negotiations generally take place in member countries such as Japan (the Tokyo Round) in 1973-1979 and Uruguay (the Uruguay Round) in 1986-1990.

The aim of easing trade is not always accurate, even though the history of post-World War II global commerce has been on the whole positive. The protectionist germ is noted by Dr. Bhagwati, who is now economic policy adviser of GATE. many GATT members, including the United States, remain muddled or lukewarm to the idea of free trade, goaded as they are by powerful domestic interests such as farm, labor, and textile organizations. In fact, it was farm interests, most notably European and Japanese, that tripped up the final Uruguay Round of GATT tariff reductions in December 1990, causing trade diplomats to go back to the drawing board.

For its part, the United States suffers from a trade neurosis that the author christens “the diminished giant syndrome,” an affliction characterized today by plaints in Congress and the media of “unfairness,” “foreign subsidies,” and, in the case of Bangladeshi textiles, “pauper labor.” Professor Bhagwati sees America as a parallel of Britain at the turn of the century when the United States and Germany arrived on the world scene. Today the new kid on the trade block is Japan, and Japan-bashing is in vogue.

Recently Japan, along with India and Brazil, was cited for unfair trade practices under the “Super 301” provisions of the 1988 Omnibus Trade and Competitiveness Act. The Act spurred a “Structural Impediments Initiative” that had American and Japanese negotiators scurrying and probing such arcane “trade” topics as mutual antitrust policies, retail distribution systems, infrastructure spending, savings rates, and workers’ rights. Professor Bhagwati says the American “shopping list” was reputed to have included 240 such items. Hardly a way to win friends abroad.

In fact, U.S. Trade Representative Carla Hills is reported to have relied on her advisers to assert during a negotiating visit to Tokyo that foreign baby bottles couldn’t make it to Japan. Her Japanese hosts immediately refuted her assertion, producing evidence of their availability in shopping centers. Again, after being persuaded by another Japan-basher that Kodak film was not available in Tokyo’s stores (“while Fuji was in New York’s”), she was shocked to discover on investigation that the charge was simply not true.

These incidences point up the problem of world trade inside and outside GATT Trade negotiations are inevitably politicized, bureaucratized, and, in the scheme of things, compromised, especially from the viewpoint of the consumer whose interest in world commerce is, or should be, first and foremost. But GATT negotiations are off-the-record, and the consumer is almost always “the forgotten man.” What trade-offs are made? Whose industry is gored? Who gets what in what Yale economist William Graham Sumner called “the great scramble and the big divide”?

So my only comment about this otherwise excellent book is the author’s seeming beholdenness to GATT with its key principle of reciprocity. GATT is a dubious crutch. Surely it is the overwhelming case for free trade, even unilateral free trade, that should spur the thinkers and doers to dismantle domestic trade barriers to foreign imports without, if need, a quid pro quo. The consumer deserves no less.

Dr. Peterson, an adjunct scholar at the Heritage Foundation, holds the Burrows T. and Mabel L. Lundy Chair of Business Philosophy at Campbell University, Buies Creek, North Carolina.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.