Document Type

Article

Comments

Presented at the 6th Inter-University Graduate Student Conference at Cornell Law School, April 2010.

Abstract

This paper examines the present theories and shortcomings of current free trade policy, and the consequences thereof, which promote protectionist behavior among countries on an international scale. Theoretically, free trade should encourage progress within the global community. However, developing countries, with astonishing growth rates, like Brazil, China or India, have based their economies on opposing economic policies, closer to mercantilism than liberalization or free trade, allowing for poor countries to question whether free trade is the right way to improve their economies. Furthermore, a huge gap exists between what developed countries preach and what they practice, presenting a major obstacle to more effective economic practice.

Consequently, because developed countries are unwilling to subscribe to an international judicial system to regulate commercial trade or improve the most-favored nation clause benefits of the General Agreement on Tariffs and Trade (GATT), developing countries are now attempting to gather in blocks led by middle-income countries in order to enforce their economic interest by applying tariff barriers as retaliation. It cannot be ignored that poverty is rapidly increasing in developing countries; the most effective way to remedy the situation is through a fair international commercial trade system.

Because of the international economic crisis, which reached a global scale in the 1990s, the institutions created after Bretton Woods, the World Bank and the International Monetary Fund, now face the necessity of deep reform.

This paper supports globalization and free trade as a means of progress, viewing the world as a singular business community. There has been wide discussion regarding the pros and cons of globalization; targeting the protectionist tendencies which developing and developed countries implement in certain sectors of their economies has become a common issue in international forums.

Joseph E. Stiglitz’s “Making Globalization Work” and “Globalization and its Discontents,” and Paul Krugman’s “The Return of Depression Economics and the Crisis of 2008,” accurately explain how trade liberalization advocates have failed, but do not provide sustainable solutions. Milton Friedman’s book “Capitalism and Freedom” sublimely promotes free trade, but hinders itself within the constraints of fundamentalism. Thomas Schelling’s “The Strategy of Conflict,” which improved upon John Nash’s “Non-Cooperative Games,” portrays how developed countries prefer protectionism over free trade. Finally, David Smick’s “The World is Curve,” illustrates various means of how financial stability could be provided to the world. The economic crisis of 2008 created profound questions about the future of international trade transactions. Four important criteria could change in the way business transactions function: climate change, agriculture, reform in international organizations created in Bretton Woods, and a new system of dispute resolution within the World Trade Organization. The prevalent form of capitalism is at its tipping point, and it must evolve in order to survive.

It is possible to address the apparently endless disparity between developed or rich countries and developing or poor countries by applying current ideas on present free trade issues to give practical solutions.

Generally speaking, all attempts to establish an international judicial system, which would comprehensively and uniformly regulate international trade, have not worked to date. The current system is discordant at best and offers no good perspective in the short term. “In the long run,” as the British economist John M. Keynes has forewarned us, “we are all dead.” The need to address current international trade issues is immediate, and is not beneficial unless it happens now.

The actual trade system is reminiscent of the colonial system where developing countries are doomed to functioning in an agro-export capacity, with no access to industrial and technological knowledge and opportunities. Each state’s function is clearly manipulated by a directed economy, in which developed countries make all decisions based on what they need, which is the production and consumption of goods. Developing countries are basically the net suppliers of food and fuel provided that they not compete against developed countries’ farmers, neither in industry nor technology.

Three strong economic and political theories struggled for their primacy during the 20th century: nationalism, communism and capitalism in its various forms, and the latter resulted victorious. With capital as the necessary motor power of today’s economies, the challenge for the 21st Century is discovering an alternative to the current form of capitalism to provide the best possible world in which to live.

In order to be succinct, I have skipped the critique of -isms such as nationalism and communism, and vanished theories applied unsuccessfully in several developed and developing countries. I consider them extinct theories, so following Anton Chekhov’s advice "Of the dead, speak no evil."

Date of Authorship for this Version

11-23-2010

Keywords

Free trade, Globalization