Is the problem too much policy space for China, or too little? In his FT op-ed published yesterday, Dani Rodrik seems to vacillate between applauding China’s heterodox policies, and condemning the WTO for failing sufficiently to restrict those policies. His concluding paragraph claims that the problem is failure to accommodate diverse economic models in the WTO legal system. He recommends that the WTO should seek “a modus vivendi among these models, rather than tighter rules.” This is a false dichotomy: a modus vivendi does not necessarily require looser rules—in China’s case, it requires tighter rules.
This essay contains some serious errors about the existing WTO system:
- “The World Trade Organization — as well as every trade agreement since — has been predicated on the idea that economic practices in different nations would eventually converge.” This is false. In 1986, John Jackson, the late leading scholar of GATT/WTO law, called the GATT an ‘interface mechanism’ for allowing members with different economies to trade with one another. The GATT before the founding of the WTO in 1995, and the WTO, have been predicated on diversity of economies. This is why each member state has its own tariff schedule, and its own schedule of services commitments. This is why China has a lengthy, and extensively negotiated, protocol of accession that modifies and extends the rules to fit its economy. It is true that, in retrospect, China’s protocol of accession did not sufficiently address areas of difference, expecting a greater pace of reform. So new negotiations are needed—but they are needed to limit China’s policies, not to liberate them.
- “The various trade rounds under the old General Agreement on Tariffs and Trade system covered only explicit barriers to manufactured goods at the border. . . .” This is false: product regulation inside the border, and implicit barriers, were addressed.
- With the advent of the WTO (as opposed to the GATT), “Any domestic regulation with an adverse impact on imports could now be treated as a trade restriction.” This is false. The WTO agreement provides wide latitude for domestic regulation. There are theoretical problems in this latitude, but Rodrik’s statement is demonstrably false: the broad corpus of domestic regulation is safe from attack.
More broadly, Rodrik throws into question the utility of any international trade law at all: “Of course, government activism can be taken too far. But even then, it is the domestic economy that bears the brunt of the cost . . . .” First, it is not true that the domestic economy bears the majority of the costs of protectionism. Foreign producers may be harmed more than the net of harm to domestic consumers and benefit to domestic producers. Second, even if the domestic economy bears the brunt of the cost, it is not necessarily sufficiently motivated to change. It is entirely reasonable to have international law that adds to the motivation to change poor policy.
WTO law does not by any means require the type of economic model convergence that Rodrik rightly fears. Rather, WTO law is a negotiated system for interface—for doing exactly what Rodrik demands: allowing member states with different economic models to trade with one another, while partially insulating themselves from excessive policy externalities caused by differences in their economic models. The system is facing challenges, and needs some revision, especially in relation to China, but Rodrik’s call for revision points in the wrong direction of wholesale elimination of rules, rather than refinement.
