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Free Trade as Peace Maker - The benefits of an Open World Trading System(1998)

June, 1998

(Source: Co-op Dialogue, Vol.8, No.1, Jan-June,1998, pp. 28-30)

Free Trade as Peace Maker: The benefits of an Open World Trading System by Dr. Lakshmi Narasaiah, M.A.,Ph.D.

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Globalization by free trade according to the principles of the World Trade Organisation (WTO) offers the only realistic opportunity to integrate the world peacefully and in time to prevent a major disaster. The primacy of the economy over politics is the most important vehicles for a successful world domestic policy.

Since Adam Smith, traditional economic theory has on principle been well-disposed towards free trade. Free trade enables better use of the world’s economic resources than does national protectionism. Countries can concentrate on their respective strength and draw from their trade partners the goods they need, but do not produce. But there have always been objections against free trade.

The international trade system has always been encumbered by disparate accusations of unfair competition. The fear that foreign competitors use unfair methods, such as dumping, as and is widespread. If one were to believe all the charges of dumping that are made, then international trade would have been completely destroyed long ago.

Great restraint should be exercised with respect to allegations of dumping if one is interested in maintaining an inter-weaving of international economic activities.

The Free Trade Opposition Cloaks itself in Dumping Charges

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The modern form of the struggle against free trade cloaks itself in the accusation of ecological dumping or social dumping. With this difficult subject matter, one should not make sweeping generalisations. These things also are not gone into in details in what follows.

Environmental protection is an asset that every economy produces at the cost of other assets. The people’s preferences for the asset of environmental protection probably varies from country to country. It is also completely legitimate and does not at all distort trade if the environmental provisions - in line with the different national preferences - vary from country to country.

In the rich western European economic region, one should guard against a new form of cultural imperialism. it is not for this part of the world to impose its preferences for environmental assets on other countries, especially Third World countries. Free world trade brings not only economic advantages. Even more important is its contribution to lasting world peace.

In view of world population growth, every standstill in the movement towards a peaceful world society must be seen as a step backwards. We are compelled to run a race between the growing problems and the development of stable institutions to overcome them peacefully at global level. Economic history since the end of the Second World War shows clearly that free trade under the old GATT was of decisive importance for the prosperity of the industrialised nations.

The principle of help for self-help has nowhere been applied so consistently as on the free world market. In reverse, the examples of countries that cut themselves off from the world market show the disastrous consequences of the rigidity of a society which shuns the pressure of international competition.

Revolutionary Success of Open-market Policies

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The West’s policy of open markets pursued since 1948 and reinforced since 1989 has led to a dynamism which, in the true meaning of the word, is revolutionary. More than half the world population now lives in countries with annual GDP growth rates of more than 5 per cent. Europe is not among that group, which may be why it also stands somewhat apart in its mentality.

Certainly, there also can be undesirable trends in free trade. There is no ideal systems; one must choose between imperfect potentialities. However, no realistically better substitute for the free trade system is in sight, not even with respect to the goals of a pacified world; an ecologically sound world economy and a balance of global dimensions between the poor and the rich. An ideal government of philosopher kings armed with absolute power certainly could do some thing better than does free trade - but such a government remains fictitious. There are tangible and narrow limits to what the political system, whether democratic or not, can effect in a positive sense. This is how the structural conservatism of democratic and other political systems impedes the timely assertion of reforms necessary to achieve a world peace society.

The GATT was turned into the World Trade Organisation (WTO) a few years ago. Besides extending the free trade principle to services and additional agricultural sectors, the new agreement foresees above all the full inclusion of the Third World in the system. The agreement commits the industrialised nations to open their markets to developing and threshold countries.

Other important points are the strengthening and tightening of the dispute mediation process. Based on a system of relatively independent ad hoc panels, it permits complaints against WTO member countries for violations of the agreement. Thus, what is arising here is an effective global jurisdiction within the meaning of a peaceful world domestic policy.

Exclusion as Penalty

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The decisive sanction mechanism of the WTO - which is not a specialist organization of the United Nations - is the threat of exclusion. Exclusion would deny the penalised country free access to the markets of WTO members on the basis of most favoured nation status. This is a threat that requires no armed force, but is very effective. No country can still afford to do without the beneficial effects on prosperity that participation in international trade brings.

Thus, with the threat of denial of access to world markets for violating WTO rules, and the guarantee of a more or less fair competition for a country’s own products for abiding by them, a non-military sanctions system has come into being. That is substantial progress on the path to a pacified world.

Certainly, this sanction system’s sphere of influence is limited for the time being. Essentially, it will be used to assert the game rules of free trade. It offers no legal grounds for pressing other goals, such as on human rights. Attempting to expand it in this direction would for the foreseeable future put the entire system at risk.

In the current debate on globalization, the question arises whether the world economic institutions should not be converted in this manner, that politics regains its autonomy, and that the primacy of politics may be justified in philosophical terms, it virtually comes down to a demand for the ascendancy of the conservative principle.

Danger of a Slowed-down World Integration

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The demand for the primacy of politics is gaining strength from the desire to avoid the pressure to adjust which the dynamics of world events are exerting. It is today a conservative, and in fact a reactionary, long for the (Utopian) return of the functioning European welfare state of two or three decades ago. If it were asserted, it would mean practically slowing down world integration. It would run dead against the goal of a world policy based on a desire for peace.

The present primary of the economy over politics - in terms of the free movement of goods, services and capital - is basically nothing more than the priority of the global principle over the provincial, the national principle. As such, it gives the principle of change pre-eminence over the principle of maintaining the status quo. What gives the primary of the economy its legitimacy? Probably not the thought that world peace and better be secured by this means. Its legitimation lies in the very indirect economic success that the free trade system delivers.

For the reflective observer, the question remains of whether this legitimation is sufficient.

Do not Exclude Poor Countries from the Competition

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The global consequences of Asia’s growth should not have been seen only negatively. While it also may mean, for example, a great burden on the global climate, it leads at the same time to an acceleration of the process of falling birth rates and thus to an earlier stabilization of the world population.

Prosperity for the third world is so far the only realistic answer to the urgent problem of population growth. And free competition on the world market is the only reliable means of achieving this prosperity in the course of some decades.

Despite ecological sacrifice in the medium term, continuation of Third World growth is the only way to solve the long-term ecological problems. One also should not forget that only those who can eat their fill and have a roof over their heads are prepared to reflect on ecology and discuss it.

As for the rest, the balance between rich and poor is more acceptable when the poor become richer than when the rich become poorer. That applies also at the international level. The market and access to it are peaceful sanctions of the world economic system on the basis of free trade. Those who are hungry and have nothing more to lose are more of a danger to world peace than those who have eaten their fill.

The ruse of covering up domestic problems by cross border military aggression will become less attractive to the degree that a country’s own economy is integrated in the global economic system. The more countries are economically dependent on each other, the more unlikely it is that they will wage war on each other.

Globalization by free trade according to the principles of the WTO offers the only realistic opportunity to integrate the world peacefully and in time to prevent a major disaster. The primacy of the economy is the most important vehicle for a successful world domestic policy.

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* Dr. Lakshmi Narasaiah is a Reader in Economics at the Sri Krishnadevaraya University, Anantapur, Andhra Pradesh, India. She has been a regular contributor to Co-op Dialogue.