World trade organisations don’t increase trade

The World Trade Organisation (WTO) and its predecessor organisation, the General Agreement on Tariffs and Trade (GATT), have become a favourite target for anti-globalisation activists, who argue that the body's policies and rules favour trade at the expense of workers and the environment. According to researcher Andrew Rose, however, not only does the GATT/WTO not increase trade by member countries; it doesn't even produce more open trade policies among member states.

Rose finds that traditional linkages among countries – such as belonging to the same regional trade pact or sharing languages, borders and colonial histories – account for nearly two-thirds of the variations in trade. Above and beyond these gravity effects, membership in the GATT/WTO actually has a slightly negative (and statistically insignificant) impact on trade.

Rose finds that very little happens to countries' trade openness upon joining the WTO.

A typical country acceding to the WTO has an openness ratio (imports plus exports/GDP) of 73.1 percent five years before joining the organisation.

Five years after accession, the joining countries display openness ratios of only 70.4 percent. By the same token, tariffs actually rise (insignificantly) from 12.5 percent to 13.1 percent.

One example: When Mexico joined the GATT in 1986, its tariffs averaged 6.4 percent of imports. Five years later, tariffs stood at 7.1 percent. (Indeed, Mexico's tariff rates did not really start dropping until it joined the North American Free Trade Agreement in the 1990s.)

"It seems that none of the 64 measures of trade policy [openness] is strongly and consistently tied to GATT/WTO membership," explains Rose, with the exception of the Heritage Foundation's index of economic freedom. WTO members tend to enjoy more economic freedom, as measured by that index.

Source: Carlos Lozada, Does the World Trade Organisation Actually Promote World Trade? NBER Digest, May 2003; based upon Andrew Rose, Do We Really Know that the WTO Increases Trade? (NBER Working Paper No. 9273) and Do WTO Members Have a More Liberal Trade Policy? NBER Working Paper No. 9347, National Bureau of Economic Research, November 2002.

For text http://nber.org/digest/may03/w9347.html

For more on Trade http://www.ncpa.org/iss/eco/

FMF Policy Bulletin\27 May 2003