Going Alone This page intentionally left blank Going Alone The Case for Relaxed Reciprocity in Freeing Trade Edited by Jagdish Bhagwati The MIT Press Cambridge, Massachusetts London, England Foreword The great cause of removing tariffs, quotas, and other impediments to free trade among nations has proceeded, since the end of World War II, largely through reciprocal agreements: One nation agrees to reduce certain of its import restrictions in return for one or more other nations agreeing to the same These are odd sorts of contracts, because each nation’s commitments would serve its own interests even if undertaken independently of commitments by other nations But there is an economic logic and a political logic to reciprocal trade agreements and, logic aside, the agreements have been an evident success The economic logic is that, although reducing my trade barriers will itself be good for my economy, my gains will be even greater if I can induce you to reduce your barriers The political logic is an application of the theory of interest groups: Government policymaking tends to be dominated by producer interests, and reciprocal trade negotiations can harness the expansionist interests of a nation’s producer-exporters to overcoming the protectionist interests of its producer-importers And the practical evidence is that the postwar progress of reciprocal agreements, including the General Agreement on Tariffs and Trade (GATT) and trade liberalization under its auspices, has been accompanied by large gains in trade and economic welfare among the participating nations Both the logic and the evidence are, however, incomplete Reciprocal reductions in trade restrictions may be just as beneficial if pursued sequentially as simultaneously, especially if the simultaneous ones require each nation to postpone its reductions until its diplomats get home from Geneva The trade agenda generated by interest-group competition may be less than ideal and will certainly introduce economic distortions of its own, especially when pursued at the regional level And it is easy to find beneficial trade reforms For Robert Baldwin and John Chipman Generous friends and great international economists This page intentionally left blank Contents Foreword by Christopher DeMuth Preface xi ix Introduction: The Unilateral Freeing of Trade versus Reciprocity Jagdish Bhagwati 31 I Historical Experience Leadership by Example?: Britain and the Free Trade Movement of the Nineteenth Century 33 John A C Conybeare Reciprocity and the Origins of U.S Trade Liberalization 61 Douglas A Irwin Reciprocity in GATT 1947: From 1942 to the Kennedy Round 85 Alice Enders Market Access Bargaining in the Uruguay Round: How Tightly Does Reciprocity Constrain? 111 J Michael Finger, Ulrich Reincke, and Adriana Castro II Country Experience 137 Australia: A Case Study of Unilateral Trade Liberalization Ross Garnaut 139 viii Contents Trade Reform in New Zealand: Unilateralism at Work 167 Lewis Evans and Martin Richardson Trade Liberalization in Asia 219 Arvind Panagariya Central Europe during the 1990s: From Unilateralism to Bilateralism 303 Patrick A Messerlin 10 The Political Economy of Unilateral Trade Liberalization: The Case of Chile 337 Sebastian Edwards and Daniel Lederman 11 Unilateral and Reciprocal Trade Reform in Latin America 395 Rachel McCulloch III Sectoral Experience 443 12 Unilateral International Openness: The Experience of the U.S Financial Services Sector 445 Lawrence J White 13 The Japanese Big Bang as a Unilateral Action 483 Koichi Hamada 14 Internet-Induced Liberalization and Reciprocity: The Case of Telecommunications 513 Cynthia Beltz Soltys Index 573 ( 2002 Massachusetts Institute of Technology All rights reserved No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher This book was set in Palatino on 3B2 by Asco Typesetters, Hong Kong, and was printed and bound in the United States of America Library of Congress Cataloging-in-Publication Data Going alone : the case for relaxed reciprocity in freeing trade / edited by Jagdish Bhagwati p cm Includes bibliographical references and index ISBN 0-262-02521-3 (hc : alk paper) Commercial policy International economic relations International trade I Bhagwati, Jagdish N., 1934– HF1411 O497 2002 2002016513 382 71 09—dc21 This page intentionally left blank Index Africa, sub-Saharan, 424 Agricultural Adjustment Act (AAA), 73 Agriculture, 36, 73, 111 in Chile, 342, 365, 372–373, 378 and the General Agreement on Trade and Tariffs (GATT), 101 in India, 272–275 in New Zealand, 174, 184–189 and tariff concessions, 261–263 Alessandri, Jorge, 351 Allende, Salvador, 340 Andean Pact, 342, 353–354, 356, 424 Anglo-American Committee on Commercial Policy, 86–92 Aninat, Eduardo, 384 Antidumping rules, 319–322, 557 Argentina, 346–347, 395, 405, 406, 410, 412, 547 Ariff, Mohamed, 245 Asia See also individual countries debt crises in, 445, 473 defining openness in, 230–232 East, 232–240 economists’ support for reform in, 245 export growth in, 246–247 ideas behind trade liberalization in, 241–246 industry interests and reform in, 246– 247 influence of Latin America on, 241 institutional changes in, 247–248 and the Internet, 540 and market access bargaining, 554–555 newly industrialized economies (NIEs) of, 241 politics and reform in, 245–246 post-1980 trade liberalization in, 241– 248 protectionism in, 227–230 range of trade policies in, 219–220 reductions in tariffs and nontariff barriers in, 233–240 rising living standards in, 247 South, 232–233, 237–240 tariff levels in, 233–240 and telecommunications, 522–523, 554– 555 trade liberalization and rates of growth, 232–233 trade liberalization between small countries of, 225–226 Asia Pacific Economic Co-Operation (APEC), 160–163, 235 Association of South-East Asian Nations (ASEAN), 280, 431 AT&T, 555 Auld, George, 102 Australia See also New Zealand and the Asia Pacific Economic Co-Operation (APEC), 160–163 and the Australian Federation, 140–141, 145 economists of, 150–152 exchange rates controls in, 148 and the General Agreement on Trade and Tariffs (GATT), 158–160 government reform in, 148–149 historical perspective on, 139–140, 150– 152 import restrictions in, 144–145 interest groups in, 153–155 manufacturing industry in, 139, 141–150 and most-favored-nation (MFN) status, 162–163 and multilateralism, 159 and open regionalism, 161–162 574 Australia (cont.) political economy of trade liberalization in, 150–157 protectionism in, 140–145, 152–153, 158–160 public funding of political parties in, 153–155 public opinion in, 151 racial discrimination in, 145–149 recessions in, 153, 156–157 and specific reciprocity, 164 trade agreements with New Zealand, 159–160, 195–196 unilateral liberalization in, 159, 161–163, 164 and the World Trade Organization (WTO), 158–160 Austria, 45 Aylwin, Patricio, 346, 359, 379–380 Bagwell, Kyle, Balance of payments, 87–89, 141–142, 267, 276, 340–341, 345, 488 and the General Agreement on Trade and Tariffs (GATT), 94–95, 99 Balassa, Bela, 245 Balkan countries, 331–332 Baltic Free Trade Agreement (BAFTA), 307, 326, 330 Baltic states, 307, 326 Bandaranaike, S., 290–291 Bangladesh, 219, 236, 237, 284–287 Banking, 263–264, 447, 448, 455, 456–458, 465–469, 485–499 See also Financial services Bargaining and accommodating constituencies at home, 119–120 common good model of, 116–117 complications in, 114–116, 552–556 and concessions, 118–131 data and measurements, 122–130 and experimental economics, 117–118 and fairness, 116–117, 120–122 mercantilist model of, 113–116, 130–133, 320–321 nature of, 112–113 noneconomic objectives in, 114–115 and politics, 115–116, 119–120 and unions, 366–368 Barshevsky, Charlene, 513 Beckett, Grace, 90 Index Bhagwati, Jagdish, 85 Bhutto, Z A., 287 Bilateralism, 45–47, 85, 87–88, 94–95, 102–104, 197, 327–328 Boeninger, Edgardo, 380 Bolivia, 396, 405, 422 Bound concessions, 127–130 Bound reductions, 123 Brazil, 241, 346–347, 398, 405, 406, 409, 410 Bretton Woods institutions, 308–309 Bright, John, 17, 42 Brock, William, 429 Bulgaria, 306, 326 Callback services, 531–534 Canada, 46, 68, 75, 553 Cardoso, Fernando Henrique, 347 Cauas, Jorge, 351–352 Central European Countries (CECs) See Europe, Central and Eastern Central European Free Trade Agreement (CEFTA), the bilateral agreements of, 327–328 economic costs of, 328–330 member countries of, 326–327 and most-favored-nation (MFN) status, 328 political implications of, 330 Central Unica de Trabajadores (CUT), 366–368 Chicago Boys of Chile, the, 350–357, 412 Chile See also Latin America agriculture in, 365, 372–373, 378 and the Andean Pact, 342, 353–354, 356 and balance of payments, 340–341, 345 Chicago Boys of, 350–357, 412 and CIEPLAN, 357–360 and the Comisio´n de Asesorı´a de Polı´tica Arancelaria (CAPA), 354–355 compensation mechanisms during reform in, 360–375 dissenting views on reform in, 357–360 economic recession in, 375–380 employment costs of reform in, 355–356 and exchange rates, 342-345, 352–353, 357, 365, 369, 374–375, 378–379 financial services in, 366, 370–372 five stages of trade liberalization in, 340–347, 415 grupos of, 366 import tariffs elimination in, 353, 553 Index indirect compensation schemes in, 362, 373–375 interest group lobbying in, 360–369 labor market reforms in, 366–368, 374– 375, 380–383 military dictatorship in, 372–373 Minimum Employment Program (MEP) of, 369 origins of reform in, 337–340 policymakers of, 350–352, 372–373 political ideology in, 347–360, 357–360 trade liberalization program in, 352– 357, 395–397, 403, 422, 543–544 unemployment in, 380–383 unilateralism in, 345–346, 383–384 China, 219, 236, 237, 241, 247, 276, 523, 532 and Taiwan, 255 Ching-Kuo, Chiang, 246 Churchill, Winston, 90–91 CIEPLAN, 357–360 Civil War, the, 62, 70 Clinton, Bill, 4, 160 Closer Economic Relations with Australia (CER), 195–196 Cobden, Richard, 1, 17, 38–39, 41–43 Cobden-Chevalier Treaty of 1860, 45, 48 Collados, Modesto, 377 Colombia, 409, 415 Colonialism and free trade, 43, 46 Comisio´n de Asesorı´a de Polı´tica Arancelaria (CAPA), the, 354–355 Common good model of bargaining, 116–117 Communism, 80, 255 Concessions See also Tariffs and agriculture, 261–263 bound, 127–130 equality in, 111–112 and the Europe Agreements (EAs), 320 measuring, 124–130 and mercantilism, 130–133 negotiating, 94–95, 118–122 and politics, 119–120 received versus given, 130–131 reciprocal, 125–127 and substantial equivalence, 97–98 total, 127–130 uniformity in, 129–130 between the United States and Taiwan, 260–264 575 Confederacı´on de la Produccio´n y el Comercio (COPROCO), 365 Confederacı´on de la Productores Agrı´colas (CPA), 365 Corden, Max, 245 Corn Laws of Great Britain, 3, 5, 16–17, 35, 38–39, 40, 43, 55 Costa Rica, 405, 407–409 Croatia, 326 Cuba, 68 Curzon, Gerald, 95, 98 Czechoslovakia, 305–306, 307, 310, 317– 318, 326, 327 Debt crises, 406, 411, 445, 473, 485–487 De Castro, Sergio, 342, 351–352, 356 De la Cuadra, Sergio, 351, 354–355, 377 De´lano, Manuel, 377 De la Plata, Alfonso Ma´rquez, 372 Democrats and the Reciprocal Trade Agreements Act (RTAA), 75–77 support for low tariffs, 66–67, 69–70, 72 and trade policy after World War II, 77– 80 Denmark, 46, 543 Depression, the, 72 Diaz, Nicanor, 368 Dingley Tariff of 1894, 67 Disraeli, Benjamin, 43 Documents of Yao, The, 486 Douglas, Roger, 172, 194 Economist, The, 39 Ecretement, 101 Effective competitive opportunities (ECO), 551–552 Effective rate of protection (ERP), 197– 203 Estonia, 307, 326, 330, 540 Europe, Central and Eastern, 245 and the Balkan countries, 331–332 and the Bretton Woods institutions, 308–309 and the Central European Free Trade Agreement (CEFTA), 326–330 economic and political effects of reform in, 310–313, 320–326 and the Europe Agreements (EAs), 313– 326 and the General Agreement on Trade and Tariffs (GATT), 317–318 576 Europe, Central and Eastern (cont.) and mercantilism, 320–321 and most-favored-nation (MFN) status, 305–307, 317, 323–326, 328, 329–330, 331–332 policymakers, 308 post–Soviet Union politics in, 303–304, 325–326, 330 trade flows in, 311–313 trade liberalization in, 305–307 unilateralism in, 305–307 and Western Europe, 310–326 Europe, Western See also Great Britain British support for nations of, 51–52 and Central and Eastern Europe, 310– 326 and containment of Communism, 80 economists of, 308 and the Europe Agreements (EAs), 313– 326 and the General Agreement on Trade and Tariffs (GATT), 98–102 GNP growth in, 51 influence of Great Britain on trade in, 51–55 interest groups and ideology in, 51 and most-favored-nation (MFN) status, 323–326 telecommunications market structure, 522 Europe Agreements (EAs), the adoption by Western, Central, and Eastern European countries, 313–317 and antidumping rules, 319–322 Central and Eastern Europe preferences under, 317–318 concessions contained in, 320 and credibility of countries, 323–326 economic net costs of, 320–322 European (Western) countries preferences under, 318–320 and most-favored-nation (MFN) status, 317, 323–326 and nontariff barriers (NTBs), 318–320 political costs of, 322–326 and the textile industries, 319–320 and trade diversion, 320–322 European Economic Community (EEC), the, 86 and ecretement, 101 and General Agreement on Trade and Tariffs (GATT), 98–104 Index tariff reductions among members of, 99 and the United States, 100–101 Exchange rates, 148, 247, 284, 286, 291– 292, 342–345, 352–353, 357, 365, 369, 374–375, 378–379, 403, 405–406, 416– 417 Experimental economics, 117–118 Fairness in trade, 4–5, 36, 103–104, 116– 117, 120–122 Federal Communications Commission (FCC), 550–552 Federal Reserve Bank, 456 Financial services, 263–264, 366, 370–372 and banking, 263–264, 447, 448, 455, 456–458, 465–466, 467–469 benefits of openness in, 472–473 consumers, 505–506 cross-section analysis of, 467–469 and economic regulation, 453 and finance companies, 448, 462, 471 and financial facilitators, 450 and financial intermediaries, 449 foreign investment in domestic, 456–474 and geographical proximity factors, 451–452 and health-safety-environment (HSE) regulation, 453–454 industry categories, 448–452 and information regulation, 454–455 and insurance, 264, 449, 456–458, 469, 499–500 in Japan, 485–499 and mutual funds, 448, 455, 461, 471 and national treatment, 455 nature of, 450–452 necessity of, 450 openness of United States, 455–474 and pension funds, 449, 462–463, 471 and primary markets, 450 protectionism in, 446–447 reciprocity in, 446–447 regulation of, 452–455, 491–496 and secondary markets, 450 and securities, 264, 448, 454, 458–461, 470 time dimension of, 450–451 time-series data on, 467–468 unilateral openness in, 463–474 Finland, 543 Fiorina, Morris, 61–62 First-difference reciprocity, 85–86 Index Fordney-McCumber tariff of 1922, 80 Foreign investment in domestic economies, 250, 257, 282, 289, 502–504, 552, 553, 556–557 in financial services, 456–474 France Cobden-Chevalier Treaty between Great Britain and, 45 protectionism in, 48–49 and telecommunications, 553 telecommunications market structure, 522 trade agreements with Great Britain, 40, 44–45 trade agreements with the United States, 75 Free-rider problem, the, 63–64, 103–104 Free trade adjustment to, 413–416 and agriculture, 36, 73, 101, 111, 174, 261–262, 272–275, 342, 378 analysis, 1–4 and antidumping rules, 319–322, 557 and the Asia Pacific Economic CoOperation (APEC), 160–163 and balance of payments, 87–89, 141– 142, 267, 276, 340–341, 345, 488 and bargaining models, 112–117 and crisis situations, 347–348 and debt crises, 406, 411, 445, 473, 485– 487 and deregulation, 499–501 in the early twentieth century, 75–77 and emulation of United States policies, 556–558 and exchange rates, 148, 247, 284, 286, 291–292, 342–345, 352–353, 357, 365, 369, 374–375, 378–379, 403, 405–406, 416–417 and experimental economics, 117–118 fairness in, 4–5, 36, 103–104, 116–117, 120–122 and financial services, 263–264, 366, 370–372, 445–474 and foreign investment, 250, 257, 282, 289, 456–474, 502–504, 552, 553, 556– 557 and the free-rider problem, 63–64, 103– 104 and globalization, 530–531, 534–540 and government regulation, 453, 483– 484, 494–501 577 Great Britain’s influence on world, 52– 55 ideology and morality, 41–43, 51, 347– 360 imperialism of, 43 and incidence-based measures of policies, 400 and inflation, 345, 374, 406, 417–418 and the Internet, 534–540 and labor market reforms, 349, 355– 356, 366–368, 374–375, 380–383, 419– 421 and large countries, 223–224, 328–329, 501–502 and liberality, 400 and manufacturing, 36, 48, 64–65, 100, 111, 139, 141–150, 163, 174, 267–271, 364–365 and military dictatorships, 372–373 and national power and wealth, 43–44, 51–52, 196 negotiations in Europe, 44–47, 46–55 and neutrality, 400 in the nineteenth century, 34–38, 46–50, 55–57 noneconomic objectives in, 114–115 and nontariff barriers (NTBs), 233–240, 318–320 and nontariff measures (NTMs), 400– 403 and open regionalism, 161–162, 383– 384, 400, 425–429 and outcome-based measures of policies, 400 policymaking, 75–77, 350–352 and postal services, 507–508 and racial discrimination, 145–149 and religion, 42 and small countries, 220–223, 328–329, 501–502 and tariff revenues, 40–41, 172 and textiles, 38–39, 44, 111, 142–144, 152, 163, 172, 267, 319–320 and tobacco and wine, 262–263, 328 and unconditional most-favorednation status, 12–16, 70–71, 74, 85, 102–104 and unemployment, 380–383, 420–421 and unilateralism versus reciprocity, 2–10, 46–47, 161–163, 424–432 and unions, 366–368 and world peace, 42, 114–115 578 General Agreement on Trade and Tariffs (GATT), the, 34, 49, 86, 116–117, 228, 229 and Australia, 158–160 and the balance of payments problem, 94–95, 99 and Central and Eastern Europe, 308– 309 and ecretement, 101 and the Europe Agreements (EAs), 317– 318 and the European Economic Community, 98–104 formula approach in, 95–102 and Malaysia, 280–281 on most-favored-nation (MFN) status, 94–95 and multilateralism, 430–434 multilateral nature of, 95–102, 159 negotiations on, 92–93 and New Zealand, 192 nontariff negotiation rules for, 96 and Philippines, 282–284 and the principal supplier rule, 94–97, 101–102 and reciprocity, 102–104, 112 and Regional Trade Agreements (RTAs), 430–434 tariff concession in, 94–95 tariff negotiation rules for, 93–94, 96– 98 and the United States, 98–102 Germany protectionism in, 48–49 relationship with Great Britain, 45, 46 tariffs in, 50 and telecommunications, 546 telecommunications market structure, 522 treaties with European nations, 49 Giffen, Robert, 39 Globalization, 530–531, 534–540 Goldsmith, James, 313 Gottuzzo, Lorenzo, 351, 354 Gradualism in reform, 413–416 Great Britain, 3, 5–6, 16–17 See also Europe, Western agriculture in, 36 bilateral negotiations by, 44–47, 88 and the Cobden-Chevalier Treaty of 1860, 45, 48 and colonialism, 43, 46 Index Corn Laws of, 3, 5, 16–17, 35, 38–39, 40, 55 domestic reforms in, 40 economic ideas, ideology, and morality in, 41–43 emulation of, 47–50 and the European Economic Community (EEC), 99 and European liberalization of trade, 50–55 and free trade in the nineteenth century, 34–38, 55–57, 553–554 and the General Agreement on Trade and Tariffs (GATT), 98–99 and India, 265 influence on world trade, 51–55 interest group lobbying in, 38–40 manufacturing in, 36, 48 and most-favored-nation (MFN) status, 45–46, 54–55 motives for free trade movement in, 33–34 multiple-tier tariff systems of, 45–46 national power and wealth, 43–44 and New Zealand, 168–169, 195 politics in, 36–40, 53–54 protectionism in, 36–38, 39–40, 553–554 and the Reciprocal Trade Agreements Act (RTAA), 89–91 and Singapore, 250–251, 254 social welfare reforms in, 40 and Sri Lanka, 289 support of European nations by, 51–52 tariff revenues in, 40–41 telecommunications agreements with the United States, 529 telecommunications market structure, 522 textile industry in, 38–39 trade agreements with the United States, 54–57, 75, 89–91 and unilateralism, 46–47 and World War I, 50, 69–70 and World War II, 92, 265 Harmonized System (HS) of classification, 285 Hashimoto, Ryutaro, 483, 507 Hawke, Bob, 154, 160 Health-safety-environment (HSE) regulation, 453–454 Hee, Park Chung, 246 Index Holland, 43 Hong Kong, 130, 131, 161, 219, 229, 236, 241, 279, 532 Hughes, Charles, 70 Hui, Lee Teng, 246 Hull, Cordell, 72–73, 114, 311 Hundt, Reed, 549 Hungary, 305–306, 326, 327 Iceland, 540 Imperialism of free trade, 43 Income tax in Great Britain, 40 in the United States, 70 India, 36, 131, 219, 229, 237, 245–246, 532, 540, 547–548, 554 See also Asia agriculture in, 272–275 and Great Britain, 265 manufacturing industries in, 267–271 Open General Licensing (OGL) in, 266 politics and reform in, 265–266, 275– 277 protectionism in, 265–266 tariff levels in, 266–276 trade liberalization in, 266–276, 278 Indirect compensation, 362, 373–375 Indonesia, 219, 225–226, 236, 241, 246, 445, 532, 540 Industry-specific uniform tariffs (DERPs), 199–203 Inflation and exchange rates, 345, 374, 378–379, 406, 417–418 Information regulation, 454–455 Innovation and unilateral trade liberalization, 18 Insurance services, 264, 449, 456–458, 469, 499–500 See also Financial services Interest group lobbying in Australia, 153–155 in Chile, 360–369 in Europe, 51 in Great Britain, 38–40 in New Zealand, 178–182, 185, 189–190, 204–205, 207–208 and protectionism, 228–229 in the United States, 63–65, 74, 76 International Monetary Fund (IMF), 87, 94, 191, 195, 228, 245, 247, 282, 284, 293–294, 309, 398, 406, 411, 416 International Trade Organization (ITO) of the United Nations, 92–93, 96, 116 579 Internet, the, 514, 529, 541 See also Telecommunications and bypassing restrictions, 539–540 and globalization, 534–537 and open competition, 543 and unilateral liberalization, 515, 541– 548 and voice over the Net, 534–540 Italy, 522 Item-by-item approach to liberalization, 97–98, 99–100, 114 Japan, 111, 161, 319 administrative control of financial industries in, 494–499 banking collapse in, 485–487 Big Bang reform program in, 498, 499– 501, 504–509 central bank of, 485–499 consumers of, 505–506 debt crisis in, 485–487 deregulation of financial services in, 499–501 earthquake disaster in, 486 emulation of Western institutions and policies by, 484–499 expansionary macroeconomic policy in, 491–193 foreign investment in, 502–504, 553 incentive mechanism in, 491–496 insurance industry in, 499–500 land prices in, 491 politics in, 489–490, 504–508 Postal Saving System (PSS), 507–508 structure of financial services in, 488– 489, 490–494 and Taiwan, 255, 486–487 telecommunications market structure, 523 traditional financial system of, 484–490 unilateralism in, 501–504 and the United States, 445–446, 473 and World War I, 485–486 and World War II, 498–499 Jayawardene, J R., 291 JOANNA tariff model, 198–199 Kataoka, Naoharu, 486 Keating, Paul, 154, 157, 160, 162 Kennedy, John, 99–102 Keohane, Robert, 85 Keynes, John M., 87 580 Index Khan, Ayub, 287 Klaus, V., 327 Korea, 111, 130, 161, 219, 231, 237, 241, 246, 445, 522, 553 Krueger, Anne, 245 Krugman, Paul, 113 Kuan-Yew, Lee, 251 Kuznetz, Simon, 419 trade policy reforms in, 399–409 unilateralism in, 424–432 Latvia, 307, 326 League of Nations, 49–50 Lerner Symmetry Theorem, the, 230 Lira, Samuel, 377 Lithuania, 307, 326 Liu, T C., 257 Labor market reforms, 349, 355–356, 374–375, 405 and per capita income (PCI), 418–419 and skilled versus unskilled labor, 419– 421 and unemployment, 380–383, 420–421 and unions, 366–368 LaFollette, Robert, 64 Lagos, Ricardo, 347 Latin America, 227, 241, 308 See also individual countries adjustment to new policies in, 413–416 customs unions of, 424 debt crisis in, 406, 411 economists of, 410–412 and exchange rates, 403, 405–406, 416– 417 industrialization of, 423–424 inflation in, 417–418 labor market reforms in, 405 macroeconomic stability in, 417–418 and most-favored-nation (MFN) status, 397–398 motivations for trade liberalization in, 395–399 multilateralism in, 430–432 nontariff measures (NTMs) in, 400–403 obstacles to successful reform in, 413 per capita income (PCI) in, 418–419 politics in, 409–413 popular support for reforms in, 412–413 and reciprocity, 406–409 reciprocity in, 424–432 Regional Trade Agreements (RTAs) in, 398–399, 409, 412, 425–429, 430–434 results of reform in, 406–407 sequential nature of reform in, 409–413, 421–423 and skilled versus unskilled labor, 419– 421 tariff levels in, 400–405 and tariff revenues, 418 telecommunications in, 546–547 Macedonia, 326 Malaysia, 219, 236, 241, 249, 251, 279– 281, 523, 554 Manufacturing in Australia, 139, 141–150, 163 in Chile, 364–365 in Great Britain, 36, 48 in India, 267–272 in New Zealand, 174, 177–184, 207 and petroleum tariffs, 100, 259–260 tariff negotiations, 111 in the United States, 64–65 Market access bargaining common good model of, 116–117 complications in, 114–116 and concessions, 118–131 data and measurements, 122–130 and the Europe Agreements, 318–320 and experimental economics, 117–118 fairness in, 116–117, 120–122 mercantilist model of, 113–116, 130–134 and telecommunications, 513–514, 517– 524, 537–541, 554–555 Martı´n, Manuel, 377 Maximum-minimum tariff schedules, 69 McKellar, Kenneth, 72 McKinley Tariff of 1890, 68–69 Meade, James, 86–88, 94 Mercantilist model of bargaining, 113– 116, 130–133, 320–321 Mercosur, 424, 425, 429, 430–431, 431 Mexico, 241, 396, 403, 406, 407–409, 422 Mohamad, Mahathir, 554 Moldova, 326 Most-favored-nation (MFN) status and the Asia Pacific Economic CoOperation (APEC), 162–163 and Central and Eastern European countries, 305–307, 313, 317, 328, 331– 332 conditional, 12–13, 70 and credibility of reforms, 323–326 differences in, 329–330 Index and the General Agreement on Trade and Tariffs (GATT), 94–95 Great Britain and, 45–46, 54–55 and Latin America, 397–398 and tariff concessions, 94–95 transaction costs, 49–50 treaties of the nineteenth century, 45, 48–50 unconditional, 12–16, 70–71, 74, 85, 102–103 the United States and, 70–71, 74, 87–88, 90 Muldoon, Robert, 185 Multilateralism, 3, 45–46, 87–88, 95–102, 159, 208, 429 and Regional Trade Agreements (RTAs), 430–434 Mutual funds, 448, 455, 461, 471 Myanmar, 219 National Industrial Recovery Act (NIRA), 73 New Zealand See also Australia agriculture in, 174, 184–189 and the Asia Pacific Economic CoOperation (APEC), 161 and bilateralism, 197 changes in resource use in, 187–189 deregulation of financial industries in, 187 domestic policy advisors in, 194–195 domestic political institutions of, 193– 194 economists of, 193 effective rate of protection study, 197– 203 export growth in, 176–177, 182–184, 187–188 and the General Agreement on Trade and Tariffs (GATT), 192 historical perspective on, 168–169 interest group lobbying in, 178–182, 185, 189–190, 204–205, 207–208 international institutions influence on reforms in, 195–197 manufacturing industry in, 177–184, 207 multilateralism in, 208 non-trade-related reforms in, 203–206 organized labor in, 205 politics in, 169–172, 191–197, 206–207 protectionism in, 173–174, 177–184, 197–203 581 relationship with Australia, 159–160, 195–196 reliance on Great Britain, 168–169, 195 the role of individuals in reforms in, 192–193 subsidies to industry in, 182–183, 185– 187 and supplementary minimum price (SMPs), 174 telecommunications market structure, 522 timing of reform in, 203 trade policy of, 172–177, 206–208 trade reforms in, 168–172, 185–187, 190–191 unilateralism in, 189–190, 195–196, 205–206 Nontariff barriers (NTBs), 233–240, 236, 311, 318–320, 400–403 North American Free Trade Agreement (NAFTA), 3, 346, 383, 424, 445 Nurkse, Ragner, 227–228 Open regionalism, 161–162, 383–384, 425–429 Options-futures, 470 Organization of American States, 424 Organization for Economic Cooperation and Development (OECD), 139, 150, 191, 195, 396, 411, 424, 526, 541–542 Orwell, George, Outward processing traffic, 319 Pacific Economic Cooperation Council (PECC), 160, 235, 282 Pakistan, 219, 237, 287–289 Paraguay, 403, 405, 412 Peace through free trade, 42, 114–115 Peel, Robert, 3, 4, 5–6, 7, 16–17, 40, 41 Pension funds, 449, 462–463, 471 Peru, 415 Petroleum tariffs, 100, 259–260 Philippines, 163, 219, 236, 237, 241, 282– 284, 532 Pin˜era, Jose´, 374 Pinochet, Augusto, 344, 346, 351 Poland, 305–306, 307, 326, 327 Politics and free trade and accommodating constituencies at home, 119–120, 429–430 after World War I, 50, 69–70, 114 after World War II, 77–80, 114 582 Politics and free trade (cont.) in Asia, 245–246 in Australia, 140–145, 150–157 and business associations, 377 in Central and Eastern Europe, 310–313 and the Central European Free Trade Agreements (CEFTA), 330 in Chile, 347–360, 357–360, 372–373 and compensation mechanism, 360–375 and crisis situations, 347–348 Democrats and, 66–67, 80–81 and the Europe Agreements (EAs), 322– 326 and the free-rider problem, 63–64, 103– 104 in Great Britain, 36–40, 53–54 in India, 265–266, 275–277 and interest group lobbying, 38–40, 51, 63–65, 74, 76, 153–155, 178–182, 185, 189–190, 360–369 in Japan, 489–490, 504–508 in Latin America, 409–413 in New Zealand, 169–172, 190–197 and policymaking, 75–77, 177–180 and presidential power in trade negotiations, 69–70, 72–74, 78, 98–102, 115 and public funding of political parties, 153–155 and public opinion, 152–153 and racial discrimination, 145–149 and the Reciprocal Trade Agreement Act (RTAA), 71–73 Republicans and, 66–67, 80–81 the role of individuals in, 192–193 in Singapore, 250–252 in Sri Lanka, 289–294 and telecommunications, 560–561 and transition costs, 348–350 in the United States, 97 Portugal, 44 Postal services, 507–508 Prado, Jorge, 377 Prebisch, Raul, 227–228 Preeg, Ernest, 113 Preferential Trade Agreements, Presidential power in trade negotiations, 69–70, 72–74, 78, 98–102, 115 Primary markets, 450 Principal supplier rule, 94–97, 101–102 Prisoners’ Dilemma game, 51–52 Protectionism, See also Concessions; Tariffs Index in Asia, 227–230 in Australia, 140–145, 152–153, 158–160 decline of, 79–80, 187–188, 254–255 and effective rate of protection (ERP), 197–203 in Europe, 48–49 in financial services, 446–447 in Great Britain, 36–38, 39–40, 553–554 ideas of, 227–228 in India, 265–266 and industry-specific uniform tariffs (DERPs), 199–203 institutions involved in, 229–230 and interest group lobbying, 228–229 and the Internet, 540–541 in New Zealand, 173–174, 177–184, 197–203 and reform ideology, 349–350 in Singapore, 252–254 supply and demand and, 7–8 in the United States, 62–63, 66–67, 72, 76, 79–80 Protectionism, 10 Protestant ethic, the, 36 Prussia, 45 Racial discrimination, 145–149 Raffles, Stamford, 249 Rahman, Tunku Abdul, 251 Rao, Narsimha, 275 Rattigan, G A., 151 Reciprocal concessions, 125–127 Reciprocal reductions, 122–123 Reciprocal Trade Agreements Act (RTAA), the, 19, 61 as a catalyst for liberalization of trade policy, 75–77 institutional structure of, 77–80, 89 item-by-item approach in, 97–98, 99– 100 passage of, 74–75 political support for, 71–74 provisions of, 73–74 after World War II, 77–80 Reciprocity and the Asia Pacific Economic CoOperation (APEC), 163 and Australian policy, 158–163 and bargaining models, 112–117 bilateral, 45–47, 85, 87–88, 94–95, 102– 104, 197 concepts in, 10–16 Index delays induced by the United States, 550–552 diffuse, 160–163 economics of, 4–8 in financial services, 446–447 first-difference, 85–86 and large countries, 20–21, 99–100, 223– 224 and Latin America, 406–409 limits of, 548–558 and most-favored-nation (MFN) status, 12–16, 94–95 multilateral, 3, 45–46, 87–88, 95–102 and the notion of equivalence, 85 popularity of, 3–4 and the principal supplier rule, 94–97 and protectionism, 7–8, 79–80 relaxed, 81 and retaliation, 68–69 sequential, 6–8, 10, 102 and services, 549–550 simultaneous, 10 and small countries, 48, 96–97, 192, 220– 223, 225–226 specific, 85, 164 and trade liberalization, 102–104, 112 transition costs of, 429 two-country model of, 21–26 types of, 11 and unilateral free trade, 19–20 versus unilateralism, 2–10, 46–47, 161– 163, 164, 424–432 between the United States and other nations, 54–55, 67–75, 80–81, 255, 257, 260–264, 550–552 Reform, trade policy and adjustment to new policies, 413– 416 benefits of unilateral openness in, 541– 546 and compensation mechanisms, 360– 375 and consumers, 505–506 and crisis situations, 347–348, 406, 411 gradualism in, 413–416 individual rationality in, 505 and labor markets, 349 obstacles to successful, 413–424 and per capita income (PCI), 418–419 and popular support, 412–413 and protectionism, 349–350 and real exchange rates, 416–417 583 sequencing of, 349–350, 409–413, 421– 423, 505–506, 558–559 speed of, 348–350, 548–549 transition costs of, 348–350, 429 Regional Trade Agreements (RTAs), 398– 399, 409, 412, 425–429 and the General Agreement on Trade and Tariffs (GATT), 430–434 and multilateralism, 430–434 Religion and free trade ideas, 42 Republicans and the Reciprocal Trade Agreements Act (RTAA), 75–77 support for high tariffs, 66–67, 69–70, 73 support for trade liberalization, 79–80 and trade policy after World War II, 77– 80 Rise of Free Trade Imperialism, The, 33 Ritchie, Charles, 39 Robinson, Joan, Romania, 306, 307, 326 Roosevelt, Franklin, 72–73, 114 Roosevelt, Theodore, 69 Sa´enz, Orlando, 373 Sakakibara, Eisuke, 497–498 Secondary markets, 450 Section 310(b), 555–558 Securities markets, 264, 448, 454, 458– 461, 470 See also Financial services Semmel, Bernard, 33, 42 Senanayake, Dudley, 291 Siamwalla, Ammar, 245 Simon, Herbert, 558 Singapore, 219, 225–226, 229, 236, 241, 245–246 See also Asia elimination of protectionism in, 254–255 foreign investment in, 250 geography and trade in, 249 and Great Britain, 250–251, 254 historical perspective on, 249 industries of, 249–250 policymaking in, 250–252 protectionism in, 252–254 relationship with Malaysia, 251–252 telecommunications market structure, 523 trade policies of, 248–249 unilateralism in, 277–278 Singh, Manmohan, 245–246, 275 Sinha, Yashwant, 275 Slovenia, 306 584 Smith, Adam, 41 Smoot Hawley tariff, 56, 63–64, 72–75 Social reforms, in Great Britain, 40 Sociedad Nacional de Agricultura (SNA), 365, 384 South Africa, 532, 540 Soviet Union, 227–228, 245, 276, 305–306, 323 Sri Lanka, 219, 237, 289–294 Staiger, Robert, Subsidies, industry, 182–183, 185–187, 290 Substantial equivalence, 97–98 Supplementary minimum prices (SMPs), 174 Sweden, 46, 522, 543 Swee, Goh Keng, 251 Tagore, Rabindranath, Taiwan, 161, 219, 231, 236, 237, 241, 246, 278 See also Asia and China, 255 export growth in, 255–260 and financial services, 263–264 foreign investment in, 257 import controls in, 255–260 and Japan, 255, 486–487 tariff concessions made by, 260–264 tariff levels in, 258–260 tobacco and wine industries in, 262–263 and the United States, 255, 257, 260– 264 Tanaka, Kakuei, 489 Tariff Act of 1897, 68 Tariff Act of 1913, 68 Tariffs See also Concessions; Protectionism bilateral, 45–47, 85, 87–88, 94–95, 102– 104, 327–328 bound, 123–124, 318 and categories of imports, 98, 173–174, 258–260, 285, 290–291, 328, 375–377 data and measurements on, 122–124 and ecretement, 101 and effective rate of protection (ERP), 197–203 emulation of British policies on, 47–50 equality in negotiating, 120–122, 552– 556 and free riding, 103–104 and the General Agreement on Trade and Tariffs (GATT), 34, 49, 86, 92–104 Index industry-specific uniform (DERPs), 199– 203 and the International Commercial Union, 87–88 JOANNA model of, 198–199 and large countries, 223–224, 328–329, 501–502 and late industrialized nations, 48, 96– 97 and liberality, 400 measurement of participation in negotiating, 124 multilateral, 3, 45–46, 87–88, 95–102, 113–114 and neutrality, 400 nineteenth century, 47–50 and nontariff barriers (NTBs), 233–240, 236, 311, 318–320 and openness, 400 and the principal supplier rule, 94–97, 101–102 reciprocal reductions in, 122–124 reductions in, 122–124, 175–176, 342– 345, 369 and retaliation, 68–69 revenues, 40–41, 172, 329, 418 and small countries, 220–223, 328–329, 501–502 and substantial equivalence, 97–98 United States authority on cutting, 100– 101 welfare effects of liberalizing, 230 Taussig, Frank, 70 Telecommunications agreements framework, 524–527 barriers to trade, 546–548 and callback services, 531–534 and computers, 528–529, 531–534, 554 and effective competitive opportunities (ECO), 551–552 and globalization, 530–531, 534–540 government control of, 515–516 historical structure of services in, 515– 516 inflated profit margins, 530 and the Internet, 514, 515, 529, 534–540 liberalization, 517–524 and market access barriers, 517–524 new structure of services in, 516–527 new technology, 528–530 role in modern trade, 513 Index and slow-moving change, 548–549, 558– 559 unilateral openness in, 541–546 and voice over the Net, 534–540, 543 world market structures, 522–523 and the World Trade Organization (WTO), 513–514, 521–527, 550, 553, 559–561 Textile industry and free trade, 38–39, 44, 111, 142–144, 152, 163, 172, 267, 319– 320 Thailand, 219, 236, 237, 241, 281–282, 445, 532 Tobacco and wine industries, 262–263, 328 Truman, Harry, 255 Tsiang, S C., 257 Uganda, 532 Ukraine, 326 Underwood Tariff, 67 Unemployment, 380–383, 420–421 See also Labor market reforms Unilateralism aggressive, in Australia, 159, 161–163 basic economics of, 4–8, 16–17 benefits of, 425–429 and the Big Bang program, 498, 499– 501, 504–509 in Central and Eastern European countries, 305–307, 313–316 in Chile, 340–347, 383–384 complementarity with multilateralism, 430–432 concessions under, 111 and financial services, 463–474 in Great Britain, 44–47, 51–57 institutions in, 18–19 interests in, 17–18 in Japan, 501–504 and large countries, 223–224 in Latin America, 424–432 in New Zealand, 189–190, 195–196, 205–206 versus reciprocity, 2–10, 46–47, 161– 163, 164, 424–432 role of innovation in, 18 and sequential reciprocity, 6–8 in Singapore, 277–278 and small countries, 220–223, 225–226 strategic, 425–429 585 in the United States, 61–65, 260 in Western Europe, 313–316 United Nations Conference on Trade and Development (UNCTAD), 233–235, 282 United States, the agriculture in, 261–263 benefits of openness policies of, 472– 473 and the Civil War, 62, 70 Congressional unilateralism in, 61–65 and containment of Communism, 80 during the Depression, 72 Dingley Tariff of 1894 of, 67 and effective competitive opportunities (ECO), 551–552 emulation of, 556–558 and the European Economic Community (EEC), 100–101 and the Federal Communications Commission (FCC), 550–552 financial services in, 263–264, 445–474 Fordney-McCumber tariff of 1922, 80 foreign investment in, 456–474, 552, 556–557 formula approach to tariffs, 102–104 and the free-rider problem, 63–64 and the General Agreement on Trade and Tariffs (GATT), 98–102 income tax in, 70 influence on world tariffs, 100–101 interest group lobbying in, 63–65, 74, 76 and the Internet, 540 maximum-minimum tariff schedule, 69 McKinley Tariff of 1890, 68–69 and most-favored-nation (MFN) status, 70–71, 74, 87–88, 90 and petroleum tariffs, 100 policymaking, 75–77, 89–90 politics and free trade in, 49–50, 61–81, 97, 115 and presidential power in trade negotiations, 69–70, 72–74, 78, 98–102, 115 protectionism in, 62–63, 66–67, 72, 76, 79–80 and the Reciprocal Trade Agreements Act (RTAA), 19, 61, 71–80, 89, 97 reciprocity-induced delays, 550–552 and reciprocity with other nations, 55– 57, 67–75, 446–447 regulation of financial services in, 452– 455 586 United States (cont.) relationship with Great Britain, 54–57, 75 relationship with Taiwan, 255, 257, 260– 264 retaliation against foreign discrimination by, 68–69, 87–88 Smoot Hawley tariff of, 56, 63–64, 72–75 Tariff Act of 1897, 68 Tariff Commission, 68, 70–71, 90, 97, 100 tariff-cutting authority of, 100–101 and tariff negotiations, 50, 54–55, 62, 75–76, 90, 260–264, 552–556 and telecommunications, 522, 529, 542– 546, 549 tobacco and wine industries in, 262–263 Underwood Tariff, 67 unilateralism in, 61–65, 260, 463–474 Walker Tariff of 1846, 54–55 and World War I, 50, 69–70, 114 and World War II, 77–80, 92, 114 Uruguay, 409 Venezuela, 406, 410, 415 Vietnam, 241, 532 Voice over the Net, 534–540, 543 Walker Tariff of 1846, 54–55 War, 42, 114 Weber, Max, 36 Welfare effects of trade liberalization, 230 Wilde, Oscar, 56 Wilson, Woodrow, 69, 114 Winham, Gilbert, 113, 115 World Bank, 195, 245, 246, 247, 284, 286, 293–294, 309, 398, 411, 416 World Trade Organization (WTO), 2, 34, 49, 120–122, 158–160, 275, 276, 313, 445, 513 and telecommunications, 513–514, 521– 527, 550, 553, 559–561 World War I, 50, 69–70, 114, 485–486 World War II, 77–80, 92, 114, 141, 265, 498–499 Yeabsley, John, 183 Yeats, W B., Yugoslavia, 330 Index .. .Going Alone This page intentionally left blank Going Alone The Case for Relaxed Reciprocity in Freeing Trade Edited by Jagdish Bhagwati The MIT Press Cambridge, Massachusetts... Hong Kong, and was printed and bound in the United States of America Library of Congress Cataloging -in- Publication Data Going alone : the case for relaxed reciprocity in freeing trade / edited by... viewed reciprocity in freeing trade as necessarily mercantilist, in the sense that if you lower your trade barriers only in exchange for others lowering theirs, you behave as if freeing your own trade