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The amazing success of the WTO - By Kitty Miv, Editor

Kitty Miv, Editor
27 October, 2011

A good week for free trade, you would have to say, even if Silvio Berlusconi, who does probably believe in it more than Nicolas Sarkozy, looks more and more miserable by the day. The EU signed off on Russia's accession to the World Trade Organization, leaving only Georgia standing in Russia's path. Ironic, considering that Vladimir Putin almost certainly doesn't believe in free trade, while Georgia definitely does. Anyway, it's looking sufficiently like a done deal for US senators to ask the administration not to trample too heavily on Georgia when it's all put to the vote.

An example of why the WTO is a Good Thing came this week when the mighty USA resorted to the WTO to contest China's partiality towards its own Internet operators. If Ron Kirk (perhaps himself rather equivocal about free trade) had engaged directly with the Chinese, they would have given him a cavalier brush-off; this way, the Chinese will be forced to answer with something less than complete obfuscation.

So why does a proud, powerful and secretive nation like China put itself in the hands of the court of (informed) public opinion? It's the economy, stupid! China saw that it would benefit massively from having tariff-free access to world markets when its miracle was about to begin (it joined in 2001) and the Chinese are nothing if not business-like.

The case is the same with Russia, although you are talking natural resources rather than manufactures, in which Russia limps along, dependent as ever on imported technology. Russia has oil, gas, coal, gold, fish, timber, gold and diamonds in spades. It was ever thus, but if Russia is to climb out of its historical rut, it has to develop secondary production (refine that oil; polish those diamonds; turn those trees into paper) and it has to be able to export those goods into mature markets with very spiky tariff walls. Hence its need for the WTO; but more even than China it will try to subvert the WTO's processes once it is inside the club.

Well, the joke will be on Russia, because the particular magic of the WTO (of compulsory free trade) is that you are benefited despite yourself. As long as you are a member, it's as if you are forced to drink a quart of Ricardo ale and a dram of Smithian single malt every day. And how can you leave? No-one has ever left the WTO, and I suppose no-one ever will; it would be economic suicide.

One day, when the economic history of our times comes to be written by a super-Keynes of the 22nd century, the genesis of the GATT and its transmogrification into the WTO will be seen as one of the greatest achievements of our civilization, a corner-stone of the sturdy economic structure that will one day deliver predictable incomes and increasing wealth to the whole of humanity.

You laugh, perhaps you even sneer; but please remember what has been built in medicine, in aviation, in IT and communications, amongst other sectors, where reliable evidence-based outcomes have replaced witch-doctory. The dismal science has been a laggard, because it is a mixture of measurable processes (inflation or employment, for example) and the (so far) unmeasurable processes of human nature. But that is changing, which is why two researchers into rational expectations gained their Nobel Prize this year.

There is nothing rational about tariffs, however, even if they appear to be useful in the short-term; and protectionism in general is self-defeating. But these are truths which are not normally accessible to the individual, isolated human mind; they can be reached only through communal intellectual effort and much bitter experience.

Today it is important, with the temporary failure of Doha weighing on us, to remember the amazing success of the WTO, and to celebrate the imminent admission to the fold of the black sheep among nations!

Ciao, Kitty


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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